Bearish sentiment towards the pound prevailed yesterday, but the sterling is rallying strongly against the euro today

The pound relinquished early gains against the single currency, closing marginally down at 1.0704 as rising risk appetite benefited the euro.

  • Sterling initially rose against the single currency yesterday after data showed a smaller than expected rise in the number of UK jobless claiming benefits, and the overall unemployment rate unexpectedly held at 7.9%.
  • This data prompted investors to further pare back some of the heavy bets built up against sterling in recent weeks, which have pushed the price to multi-month lows.
  • In addition, some analysts have said that speculation over an extension of quantitative easing could be overdone, and that the pound / euro price could have correction potential.
  • However, the market remained broadly bearish on sterling because of Britain’s deteriorating fiscal position and the likelihood that rates will remain at 0.5% for a long period.
  • In afternoon trading, the euro clawed back its losses, supported by a significant rise in global equities, which buoyed demand for the broadly stronger single currency.
  • The pound has reversed its down trend this morning, benefiting from the word so of a BoE policymaker who said that quantitative easing was now working.