Sterling hits three-week high against euro

Sterling rose to a three-week high against the euro on Monday, as investors sold the single currency given the risk that the European Central Bank could pave the way for further monetary easing before the year end to boost inflation. In contrast, rates in the UK are expected to head higher. Sterling traders will look to a speech from Bank of England Governor Mark Carney this week to see if he reiterates his position that rates in Britain could rise irrespective of whether the Fed tightens policy or not.
On Friday, BoE policymaker Kristin Forbes said rates in Britain would rise sooner rather than later. Forbes, who is seen as a hawk and an advocate for a BoE rate hike, said Britain had limited direct exposure to the problems seen so far in developing nations, even taking into account how they might hit key trading partners such as Germany.
Against the dollar, sterling was up 0.3 percent at $1.5483 while the euro was down 0.6 percent at 73.10 pence - its lowest since September 25. The euro also hit a 10-day low against the dollar. "The euro is suffering ahead of the ECB meeting with talk of further stimulus and/or a possible deposit rate cut doing the rounds," said a London-based spot trader. "There is also an expectation that Carney could sound hawkish when he speaks this week," he said, adding this was underpinning the pound.
Carney said last month that the picture on UK rates would become clearer by year-end but subdued headline inflation and worries about global growth have seen investors push out the risk of a first rate hike by the BoE to the last quarter of 2016 Sterling was also boosted last week by a planned 69 billion pound takeover of brewer SAB Miller by Anheuser-Busch InBev that is likely to see sterling inflows in the short term.
BNP Paribas analysts recommended investors to stay short on the euro against the pound ahead of the ECB meeting. Though many reckon the ECB will wait until its December meeting to announce anything new, there is a risk that additional easing measures could be flagged this Thursday and many are betting ECB chief Mario Draghi will try to talk down the euro. "We added a short euro/dollar recommendation from $1.1450 on Thursday to our existing euro/sterling short from 73.95 pence," they said. "The latter trade may get additional benefit from solid UK September retail sales data Thursday."