* BoE pledge to keep rates low to pin down sterling
* Yield gap between U.S. Treasuries and gilts narrows
LONDON, July 11 (Reuters) - Sterling pulled away from
three-year lows against the dollar on Thursday with the
greenback under pressure after the Federal Reserve chief's
comments injected doubts over when monetary stimulus will be
Yields on U.S. Treasuries fell after Ben
Bernanke's comments and spreads over UK gilts
narrowed, offering a reprieve to the British pound which has
lost over 7 percent against the dollar so far this year.
Sterling had fallen to a three-year low of $1.4814 on
Tuesday, highlighting the monetary policy divergence between the
Bank of England and the Fed. While the BoE has pledged to keep
rates low to boost a nascent economic recovery, the Fed in late
May signalled it was ready to slow its asset purchase programme,
perhaps as early as later this year.
But Bernanke on Wednesday said the U.S. central bank would
continue to pursue an accommodative monetary policy as inflation
remained low and the unemployment rate might be understating the
weakness of the labour market.
Before his comments, the minutes of the last Fed meeting
also suggested that many board members wanted further
improvement in the U.S. labour market before the pace of asset
purchases could be slowed.
All of which left the dollar index sharply lower and
boosting currencies like sterling. The pound was up 0.3 percent
at $1.5090 while it was flat against the euro. The euro was at
86.45, off a four-month high of 86.945 pence struck earlier in
"We think any rise in sterling/dollar is a sell. The
dollar's long term uptrend remains intact," said Alvin Tan,
currency strategist at Societe Generale. "In the short term, any
gains to $1.52/53 should be sold into and we retain our year end
forecast at $1.43."
Investors, particularly hedge funds, were also looking to
sell sterling against the euro on expectations the BoE would be
far more aggressive in easing monetary policy in coming months
than the European Central Bank.
The euro was likely to remain weak against the dollar as the
ECB has indicated monetary policy will stay accommodative as it
grapples with a recession in the euro zone. But since the euro
is Britain's largest trading partner, a recession there will
prompt BoE policymakers to keep policy accommodative and the
pound weaker to help exports.
As such, many expect the euro to outperform the pound.
"Yesterday's pullback managed to hold above the 85.80 area
and keeps the higher lows, higher highs scenario intact. We need
to make new highs beyond 86.70 to keep the recent grind higher
going towards 87.30," CMC Markets said in a daily note.
(Reporting by Anirban Nag/editing by Chris Pizzey, London MPG
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