Sterling snaps four-day drop against the euro

The pound snapped a four-day drop against the euro, yesterday after some investors judged the selling of the UK’s currency was overdone.

Sterling also rose against the dollar, overlooking data that showed consumer spending in the Britain rose less than forecast, reining in growth in the economy.

The euro slid against the pound after its relative strength index climbed above 70, a threshold that is deemed as overbought on technical charts.

Gilts pared losses after household expenditure rose 0.1% in the second quarter, one-third the median forecast of economists in a Bloomberg survey. The economy grew 0.3% in the period, matching an initial estimate.

“The breakdown of growth was unfavorable for the pound, with consumption slowing markedly,” said Lee Hardman, a foreign-exchange strategist at MUFG in London.

“The modest pound rebound could just reflect that it has been heavily sold recently.”

The euro fell 0.4% to 91.9p in London, paring its advance this week to 0.6%. The common currency is headed for a fourth consecutive weekly gain against sterling.

On the day, the pound traded 0.2% higher at $1.2827. The yield on 10-year gilts was little changed at 1.07%.

Some investors suggested that investors could be positioning ahead of the Federal Reserve’s two-day symposium that begins in Jackson Hole later today.

“I would concentrate on the downtrend that has been in place since the start of August, and still is, in sterling,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander.

“The pop higher could be pre-Jackson Hole positioning or leveling positions ahead of a long weekend,” he added.


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