Sterling rises vs dollar, falls vs euro on EU deal

* Sterling up 1.3 pct vs dlr, falls vs firmer euro

* Euro, risk sentiment boosted by EU bailout deal

* Investors hope for deal to form government soon

By Jessica Mortimer

LONDON, May 10 (BestGrowthStock) – Sterling rose against the dollar
but fell versus the euro on Monday as a deal by European
policymakers on a rescue package to avoid Greece’s debt crisis
spreading boosted risky assets and the single currency.

The pound was also lifted by hopes politicians would soon
reach a deal on forming a UK government after last week’s
inconclusive election as the opposition Conservatives and the
Liberal Democrats held talks on sharing power. [ID:nLDE6480O4]

However, positive sterling sentiment could soon evaporate if
the two parties fail to reach a deal soon, delaying efforts to
tackle the UK’s budget deficit.

“At the margins people are encouraged by the way the
negotiations (between the Conservatives and the Liberal
Democrats) appear to be going,” said Paul Robson, currency
strategist at RBS.

“As long as there is a government in place to tackle the
fiscal position sterling will gain, and for now people are
giving the pound the benefit of the doubt, but it’s on a bit of
a knife edge at the moment”.

At 1035 GMT, sterling was up 1.3 percent against the dollar
(GBP=D4: ) at $1.4983, well above the low of $1.4475 it hit on
Friday on the back of the inconclusive election result, its
weakest since late April 2009.

The pound gained along with other perceived riskier assets
as the European Union agreed a package with IMF support worth $1
trillion to ease near-term worries about contagion from Greece’s
severe debt problems. [ID:nSGE649024]

UK shares (.FTSE: ) rallied nearly 5 percent, while the euro
jumped across the board, including against sterling.

The euro rose 0.8 percent against the pound (EURGBP=D4: ) to
86.76 pence, though it stayed below a two-week high of 88.10
pence reached on Friday.

“The euro move above the 86.00 pence area has diminished the
downside risk in the short term and we could look to re-test the
200-day moving average at 88.90,” said Michael Hewson, analyst
at CMC Markets.

POLITICS, BOE

Analysts saying investors were encouraged that the talks
between Britain’s two main opposition parties centred on the
best way to rebuild the economy and to cut a record budget
deficit.

There were concerns, however, that disagreement over other
issues could cause the talks to stall.

“The short-term positive assessment on sterling is very much
dependent on a coalition deal being announced. If that fails
then sterling is a clear sell”, said Ian Stannard, currency
strategist at BNP Paribas.

On a trade-weighted basis, the pound was at 78.6 (=GBP: ),
recovering from Friday’s one-month low of 78.3.

The Bank of England was due to announce its policy decision
at 1100 GMT, where it is expected to leave interest rates
unchanged at a record low 0.5 percent and not to undertake any
further quantitative easing purchases. [BOE/INT] [ID:nLDE6461UP]

The BoE issues its quarterly inflation report on Wednesday,
detailing the central bank’s latest forecasts for growth and
inflation. [ID:nLDE63B1YE]

Investment Basics

Sterling rises vs dollar, falls vs euro on EU deal