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 Sterling gained after figures showed the British economy growing in
line with forecasts and at a healthy pace, providing relief for
those worried that weakness overseas, especially in the euro zone,
could drag more on activity.
The euro was down 0.1 percent at 78.85 pence and shed 0.1 percent
against the yen to trade at 136.84. Against the dollar, the euro was
steady at $1.2650, having hit a two-week low of $1.2614 on Thursday.
The euro zone's 130 biggest banks received the European Central
Bank's final verdict on their finances on Thursday after a review
aimed at drawing a line under persistent doubts about the health of
the region's banking sector. They will not be made public until 7
a.m. EDT on Sunday.
Generally investors are expecting few failures and surprises,
especially amongst household names, but going into the weekend, most
preferred to be cautious about the euro.
"Evidence that a significant number of banks -- say more than 15
percent of total, among them large European lenders -- failed, and
the capital shortfall is substantially above consensus of 25 billion
euros, could fuel concerns about future credit growth and the
economic outlook, weighing on the euro," said Valentin Marinov,
currency strategist at Citi.
"If only a handful of smaller banks fail and the capital shortfall
does not exceed market estimates, this may help euro stabilize. The
longer-term risks for euro could remain on the downside, however."
YEN FIRM
The yen was helped by safe-haven bids after news that a doctor had
tested positive for the Ebola virus in New York City after returning
from West Africa.
The first confirmed case in the city worried investors because of
the possible repercussions in the global financial center, although
some said the market focus could soon shift.
"The volatile move was a good chance for some to buy the dollar on
dips," said Kaneo Ogino, director at Global-info Co in Tokyo, a
foreign exchange research firm.
"I think, next week the market will be more event-driven, with the
FOMC and the Bank of Japan, so the downside should be limited," he
said, adding that dollar support at 107 yen was likely to hold for
now.
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The greenback was about 0.1 percent lower at 108.15 yen after
earlier dropping as low as 107.86 yen.
The U.S. Federal Reserve will meet next Tuesday and Wednesday, and
the consensus view is that it will wrap up asset purchases under its
third round of quantitative easing.
The Bank of Japan appears set to resist pressure for more stimulus
measures, or to accept its inflation target is unrealistically high,
at its next policy meeting on Oct. 31, people familiar with its
deliberations have told Reuters.
The yen had faced overnight pressure after a Wall Street Journal
report sparked talk of more easing. The article, citing people
familiar with the Japanese central bank's thinking, said the BOJ saw
"a much bigger possibility of inflation slipping below 1 percent"
due to falling oil prices.
Sterling rose against the dollar to $1.6040, after the GDP data
showed Britain's economy grew by 0.7 percent in the third quarter,
down from 0.9 percent the quarter before, but in line with
economists' expectations.
Money markets continue to price in a first interest rate rise by the
Bank of England around the middle of next year, potentially the
first post-crisis hike by any big central bank.
(Additional reporting by Lisa Twaronite; Editing by Catherine Evans)
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