Sterling hit a one-week high against the euro on Friday after European Central Bank chief Mario Draghi said "excessively low" inflation had to be raised fast by whatever means necessary, prompting bets on further stimulus in the euro zone. Draghi said there was now no sign of economic improvement in the months ahead and that the ECB would expand and step up its programme to pump more money into the economy if its current measures fell short of lifting inflation.
Earlier in the week, Draghi said further measures could involve large-scale purchases of government bonds, also known as quantitative easing (QE) - a measure that is particularly opposed in the bloc's largest economy, Germany. The euro fell to as low as 79.15 pence and was last down 0.8 percent at 79.305 pence. "It all comes down to the fact that Draghi, for the second time in a week, has hinted that QE is on the cards," said Kathleen Brooks, research director at Forex.com. The fact that Draghi was speaking in Germany suggested a new boldness in the ECB chief, she added.
"The pound is still at risk from a slowing economy, a stronger dollar and the Bank of England being a bit more dovish further down the line," Brooks said. Against the dollar, sterling slipped after the anti-EU party UKIP took a second parliamentary seat from Britain's ruling Conservatives, a harbinger of growing political risk ahead of next May's national election.
The pound was down 0.1 percent against the dollar at $1.5677, having struck a 14-month low of $1.5590 earlier this week, and was on track for a fifth straight week of losses. Data showing Britain's public finances improved slightly in October did little to lift the mood for sterling, with finance minister George Osborne still unlikely to meet his budget goals before the election. "The political situation is a pretty big headwind for sterling and it will only become a bigger issue as we head into the election next year," said Graham Davidson, a spot currency dealer with National Australia Bank in London.
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