Sterling hit a five-week high against the euro on Thursday as the Bank of England left interest rates and the size of its bond-buying programme unchanged. The decision had been broadly expected after recent stronger-than-expected UK third quarter growth figures but traders said the pound rose because some investors had positioned for the risk of the BoE opting for more stimulus.
"There was a little bit of expectation that they were going to opt for more QE (quantitative easing) because of weaker October data," said Kathleen Brooks, research director at Forex.com, attributing the rise of the pound to the BoE's decision to hold fire.
"Meeting minutes are going to be very important as is the Inflation Report it seems sterling/dollar is probably going to remain rangebound until the release of those reports." The euro fell 0.3 percent to 79.605 pence, its lowest since October 1. Further weakness could take the euro towards its late September low of 79.23 pence. Against the dollar, the pound was flat at around $1.5980, recovering from an earlier two-week low of $1.5930. Traders reported offers above $1.60 which may limit any gains.
Sterling's gains against the safe-haven dollar could be limited by concerns about whether the UK's economic recovery can be sustained given a deepening recession in the euro zone, a key trading partner. Analysts said concerns about potential political paralysis when US lawmakers negotiate a solution to the looming "fiscal cliff" of tax hikes and spending cuts were also likely to weigh on riskier currencies, including sterling, lifting the safe-haven dollar and the yen.