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Sterling slips as corporate demand evaporates
* Early gains related to Pru/AIG collapsed deal evaporate
* Focus back on pound/dollar sensitivity to risk
* Technical break vs euro favours further sterling gains
By Neal Armstrong
LONDON, June 2 (Reuters) - Sterling fell on Wednesday after
the one-off positive currency effects from the collapse of
Prudential's attempt to buy AIG's Asian arm subsided and focus
moved back to the pound's sensitivity to risk.
The pound rose broadly in early trade after British insurer
Prudential plc <PRU.L> said it was withdrawing from a $35.5
billion deal to buy American International Group Inc's <AIG.N>
Asian life insurance business AIA. [ID:nTOE65100R]
Traders said Prudential had put in place a series of
currency hedges, selling sterling against the dollar, when the
initial bid was announced in March and these positions had to be
unwound.
But the positive effects of these flows evaporated over the
course of the day.
"Sterling has settled down after being driven by alleged
flows from the corporate sector over recent sessions. There's
been some unwinding of short-term positions related to these
expected flows over the course of the day," said Paul Robson,
currency strategist at RBS.
At 1402 GMT, sterling was trading down around 0.4 percent on
the day versus the dollar <GBP=D4> at $1.4580, having risen as
high as $1.4771 in early trade.
"Focus is now back on to the risk environment," added RBS's
Robson, noting the dollar was trading with broad gains as
European stocks <.FTEU3> traded down around 0.8 percent.
"There is no new domestic political or economic development
to justify the rally of the past few sessions, which is why we
would call for caution on the bullish cable trade," said Audrey
Childe-Freeman, senior currency strategist at Brown Brothers
Harriman.
Versus the euro <EURGBP=D4>, sterling also eased after
hitting an 18-month high of 82.80 pence in early dealing to
trade around 83.65 by mid-afternoon.
Traders said there were still significant stop-loss orders
building underneath 82.80 and that the technical picture was
positive overall for sterling versus the euro.
"There's been a shift in the technical complexion for
sterling versus the euro and that should be quite supportive,"
said Credit Agricole CIB's deputy head of foreign exchange
research Daragh Maher.
"My year-end target for euro/sterling is 80 pence," he
added.
Sterling also eased from an early four-month high versus a
currency basket <=GBP> of 80.80 to stand at 80.30, according to
Bank of England data.
British mortgage approvals rose slightly more than expected
in April, but unsecured lending fell for the first time since
November, BoE data showed.
Separate figures from the central bank showed its preferred
money supply gauge -- M4 excluding intermediate other financial
corporations -- slowed sharply in April to 0.3 percent on the
month.
((neal.armstrong@thomsonreuters.com; Reuters Messaging:
neal.armstrong.reuters.com@reuters.net; +44-207-542-0876,
editing by Nigel Stephenson))
Keywords: MARKETS STERLING/CLOSE |
