Sterling held near two-month highs on the euro during Asian trade as concerns about euro zone peripheral debt continued to worry investors while it made modest gains on the dollar ahead of key manufacturing sector data. Support has held after over a week of declines as the Dollar continues to gain ground on the back of heightened risk aversion in the markets.
The manufacturing PMI survey for UK is due for release this morning with an anticipated 54.7 reading which could lift the pound a bit further.
“There is potential of a bounce for sterling after having been sold off earlier this week against the dollar,” said Kenneth Broux at Lloyds TSB Financial Markets.
“The PMIs have so far held up pretty well which shows the resilience of the manufacturing sector.” Sterling was 0.3 percent higher on the dollar, at $1.5592, recovering from a two-month low of $1.5485 hit on Tuesday.
The euro rate of exchange has dropped slightly after briefly kissing the 1.2 level earlier in the session, which was its highest rate of exchange since Sept. 20 2010.
Traders remain bullish about the pair with many of the view that the single currency was a buy on rallies. Our large corporate clients are trimming their Euro deposits whenever the opportunity arises.
The euro inched up early this morning, recovering from a drubbing yesterday, although it remained near 11-week lows against the dollar with investors waiting to see what European policymakers will do next to contain worries about euro zone debt. The latest threat from Standard & Poor’s to cut the credit ratings of Portugal was likely to check euro gains.
The Dollar continues to benefit from risk aversion and while the Euro is in panic mode this is likely to continue. Other currencies vulnerably to this are the Australian Dollar, South African Rand and any other high yield or commodity based currencies.