Sterling fell against the dollar on Wednesday, having earlier hit a 12-week high, and lagged the euro and riskier currencies in expectation of more aggressive asset-buying from the Bank of England. BoE policymakers are expected to announce a further 50 billion pounds of quantitative easing (QE) when its month policy meeting ends on Thursday, seeking to bolster the UK's struggling economy. QE involves flooding the market with more pounds and usually weakens the currency.
While a 50 billion infusion is broadly expected, a larger asset purchase programme could hurt sterling. On the other hand, if the BoE does not opt for more QE, it could give the pound a boost, traders said. Sterling was last down 0.6 percent against the dollar at $1.5812, having risen to a high of $1.5929, its strongest since mid-November. It pared gains as traders cited macro funds and Middle East names selling above $1.5920.
Traders reported options barrier at $1.60 and the November 14 high of $1.6095 which could cap gains in the near term. The euro was up 0.5 percent at 83.80 pence, its highest in more than a week and hovering just below its 55-day moving average of 83.885. In the near term, the euro could rise to as high 84.09 pence, which will be highest in a month. "We suspect that more aggressive easing by the BoE tomorrow could add to the upside risks for euro/sterling," said Valentin Marinov, currency strategist at Citi.