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Sterling clings to gains against the euro before ECB meeting

Kitco News

LONDON (Reuters) - Sterling rose to a seven-week high against the euro on Thursday, before a European Central Bank meeting that is expected to hold off on any new stimulus.

Versus the euro, the pound was up 0.1%, at 90.42 pence per euro at 1205 GMT, having earlier touched its highest level since Sept. 9 at 90.07 pence..

The ECB is expected to keep its policy unchanged and to resist pressure to introduce fresh stimulus, but it is likely to signal actions in December.

“You have the euro leg being influenced by the prospect of what is likely to be a pretty dovish set of statements from Christine Lagarde when she speaks a little later so that’s keeping euro-sterling somewhat on the defensive,” Jeremy Stretch, head of G10 FX Strategy at CIBC.

Adding pressure to the euro, French President Emmanuel Macron and German Chancellor Angela Merkel ordered their countries back into lockdown.

In the meantime, Britain’s housing minister, Robert Jenrick, said a second national lockdown in the country is not inevitable. He added that Britain, the country with the largest number of coronavirus deaths in Europe, will do everything it can to avoid putting the country into a new lockdown.

However, Steven Riley, author of an Imperial College study into the spread of the disease, said that more drastic lockdown restrictions should be brought in sooner rather than later in Britain as a new study showed cases in England are doubling every nine days.

With Britain and the EU having just two months to reach a post-Brexit trade agreement before a the status-quo transition period ends on Dec. 31, reports on the negotiations have been a key driver for sterling. But analysts said a slowdown in the newsflow this week was supportive for the currency.

“The lack of Brexit newsflow this week probably means that UK-EU negotiators are already in the tunnel – a good sign for a deal,” wrote ING strategists in a note to clients, referring to the final stretch of secretive, make-or-break negotiations.

Against a stronger dollar, the pound was at $1.2945, down 0.26% on the day, after falling as much as 1% on Wednesday, when risk aversion swept markets as COVID-19 cases surged.

There is “something of similarity in terms of the patterns” of the stock market and cable, with “sterling dynamics being much more a function of risk appetite,” Stretch said.

Editing by Toby Chopra

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