Sterling falls on weak Service PMI data but the BOE may halt QE

The British pound slipped on Wednesday, dented by initial euro gains after Greece gained backing for its plan to cut its huge deficit, while weak UK services sector activity data reminded investors the economy remains fragile. However losses were limited as separate figures showed a rise in UK consumer confidence, while the market also awaited a policy decision on Thursday by the Bank of England, which is expected to announce a halt in its quantitative easing (QE) policy.

Thursday's focus will be on the BoE policy announcement. Many analysts expect the central bank will halt its 200 billion pound program of buying UK assets from the market to stimulate the economy. Some traders/investors say an end to QE would support sterling, while analysts argued it was more likely the bank would pause its asset buying program while it confirmed that massive stimulus measures have helped the economy. "Our central case is that there won't be a new asset-buying facility, but they'll postpone a decision on it," said Frank at SG. "The statement won't be hawkish, but it won't be dovish either." The GBP/USD is currently trading at $1.5900 as of 20:24pm, GMT, with a bullish trend.

The greenback gained against the euro and the yen as a report showed U.S. companies slashed fewer positions than anticipated two days before data forecast to show the economy added the most jobs in about two years. The euro fell against the greenback after the European Commission approved Greece’s deficit-cutting program. Almunia said there is no need for Greece to seek outside help in dealing with its fiscal crisis. Greek Prime Minister George Papandreou yesterday pledged more action to tackle the deficit, including a freeze on state workers’ pay.
“We expect relative growth trends to drive currencies,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The dollar will do well should the data remain upbeat.” The EUR/USD is currently trading at $1.3900 as of 21:00pm, GMT, with a bearish trend.

The Canadian dollar may rally against its U.S. counterpart if it avoids over the next two weeks falling through the weakest level of its recent trading range, according to Royal Bank of Canada, the nation’s biggest bank. What we’ve seen over the past couple of weeks is a fairly dramatic rise in the U.S. dollar against most major currencies,” Davis said in an interview. “So many people have accumulated long U.S. dollar positions, to fairly overbought levels, and now we’re going to need some more news to come out that supports the U.S.-dollar-bullish view.” A long is a bet a currency may rally. The USD/CAD is currently trading at 1.620 as of 21:18pm, GMT, with a bearish trend.

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