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Macroeconomic News


Sterling steady as market awaits U.S. jobs data; gilts fall

Mon, 21st Oct 2013 16:21


* Trade seen quiet before U.S. jobs data on Tues

* Pound seen poised for more gains versus weak dollar

* British govt bonds track U.S. debt lower

* Focus on UK Q3 GDP data on Friday

By Anooja Debnath

LONDON, Oct 21 (Reuters) - Sterling held near recent highs against the dollar on Monday, before U.S. jobs data where a weak number could add to expectations the Federal Reserve will refrain from scaling back its monetary stimulus anytime soon.

U.S. non-farm payrolls data for September is due on Tuesday.

Sterling was flat at $1.6160, staying close to Friday's peak of $1.6224 hit, its highest level since Oct. 3. Further gains could see it target chart resistance at the Oct. 1 peak of $1.6260 and the 2013 high of $1.6380.

The pound saw a brief pullback after last week's steep ascent when it clocked its best weekly performance in a month.

"The pullback in the pound hasn't been overly aggressive, which suggests we are not going to see it go too low before we continue to push higher," said Craig Erlam, market analyst at Alpari.

"If we see it break above $1.62-$1.6220 in the next day or two following the non-farm payrolls figures tomorrow then it will be a quick move towards $1.63-$1.6380."

Erlam added that the U.S. non-farm payroll figures over the last few months have been disappointing and if that trend continues in the September readings "we could see further weakness in the dollar just because that makes it difficult for the Fed to taper in December."

Expectations are that the negative impact on the U.S. economy of the 16-day government shutdown earlier this month will mean the Fed will not start reducing the pace of asset purchases until the first or even second quarter of 2014.

In the UK, the focus will be on Friday's preliminary third-quarter gross domestic product data, which is forecast to show the economy grew by a quarterly rate of 0.8 percent.

This would boost the pound as it would add to the view that UK interest rates are likely to rise earlier than the Bank of England has flagged following a string of solid British data in recent weeks.

"There is a lot of optimism ahead of the Q3 GDP report, which could open up the $1.63/$1.6350 area," said Nawaz Ali, market analyst at Western Union Business Solutions.

The sterling overnight interbank average (SONIA) rate curve showed investors were pricing in the risk of an interest rate hike within 18 months., well before the late 2016 timeframe that the BoE has flagged.

The euro was flat at 84.59 pence, having hit a peak of 85.10 pence last week, which was its highest level since Sept. 2.

GILTS LOWER

British government bonds followed U.S. debt lower in the absence of domestic drivers for trading. At 1441 GMT, benchmark 10-year gilt yields were 2.5 basis points up on the day at 2.741 percent.

Gilts maturing in 20 years and longer lagged modestly, with their yields up around 3 basis points, as the market set up for a syndicated sale of a super-long bond expected on Tuesday and tipped to amount to around 4 billion pounds ($6.5 billion).

"Overall interest in the deal is expected to be strong as demand for gilts from pension funds has been strong recently," said Sam Hill, fixed-income strategist at RBC Capital Markets.

He thinks the 2068 gilt will be priced at or close to 2.5 basis points over the 2060 bond.



(c) Copyright Thomson Reuters 2013. Click For Restrictions - http://about.reuters.com/fulllegal.asp




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