Sterling rebounds against euro

Sterling bounced back from a five-week low against the euro on Friday, but was still on track to record its steepest weekly fall against the single currency since May, after the European Central Bank eased policy significantly less than expected. The single currency surged across the board on Thursday after the ECB confounded market expectations of an aggressive easing package, cutting its deposit rate by just 10 basis points and extending its asset purchases by six months, but not increasing the total monthly amount.
The euro gained almost 1.7 percent against the pound on the day, its biggest rise in over seven years. Sterling clawed back a little of that lost ground on Friday, up 0.3 percent at 72.075 pence, but it was still on track for its worst week in seven months versus the euro, having fallen almost 2.5 percent.
Against the dollar, sterling was 0.3 percent lower on Friday at $1.5106. It slipped earlier in the week after both manufacturing and construction data came in worse than expected, though data from the dominant services sector was robust. "It's been a bit of a shocking week, really, for sterling," said Altana Hard Currency Fund manager Ian Gunner, pointing out that the euro had already gained against the pound before the ECB's policy decision, breaking through some key technical levels.
In contrast to the ECB, the US Federal Reserve now looks almost certain to raise interest rates by the end of the year, after data showed US job growth increased solidly in November, boosting the greenback. The Bank of England is expected to be the second major central bank to raise rates since the financial crisis, but markets are currently betting that will not happen until late 2016. Clues on the likely timing of any policy tightening will come next week, when the BoE's monetary policy committee meets.
RBC Capital Markets currency strategist Adam Cole said he expected the euro to fall back against sterling - a view shared by most anaylsts. "Bigger picture, not a great deal has really changed. When you stand back and look at where we are, the ECB did ease in several ways, and we are locked into a prolonged period of easing and negative interest rates," he said.