Sterling is set to hold firm against the euro in the coming year as a brighter outlook for the British economy contrasts with a bloc struggling to contain a debt crisis and battling recession, a Reuters poll found.
The poll of over 60 foreign exchange strategists, taken this week, saw one euro buying 84 pence in one and three months and 83p in a year, down from respective forecasts of 86p, 85p, and 84p in a December poll.
But 12-month forecasts were wide, ranging from 76p to 90p, highlighting the uncertain future for the common currency.
Sterling neared a 16-month high versus the struggling euro on Thursday, reaching 82.5 pence, as investors shied away from the single currency after upbeat British data.
The manufacturing, services and construction PMIs have all surprised on the upside and offer some hope that there is still life in the UK economy, said James Knightley at ING.
Britain's dominant services sector picked up pace in December as companies saw more new business flowing in, a purchasing managers' survey showed on Thursday, dampening fears the British economy is already back in recession.
Euro zone indexes this week showed the downturn in the bloc's vast private sector economy eased slightly towards the new year thanks to Germany, but suggested the region was on course for recession.
To support growth, the Bank of England topped up its quantitative easing programme last October, flooding the market with an additional 75 billion pounds on top of the 200 billion it had already injected into the money supply.
The BoE delivered QE2 on cue, but the market did not deliver on pound weakness. It is euro travails that have allowed EUR/GBP to drift more comfortably, said Bilal Hafeez at Deutsche Bank.
The Bank predicts stagnation until mid-2012, though some policymakers have warned the economy may shrink for one or two quarters and a Reuters poll last month gave an even chance of recession in the next 12 months.
But while pressure on the European Central Bank to start printing money like its U.S. and British peers has eased, the ECB is seen cutting interest rates to a new record low of 0.75 percent in February or March from 1 percent currently.
The Bank will inject a further 50 billion pounds into the money supply next month a Reuters poll suggested on Wednesday, less than the 75 billion predicted in a December poll.
But the poll did say the Bank would add an additional 25 billion pounds later in the year, bringing the total spend in line with the previous survey at 350 billion, and leave rates at their record low of 0.5 percent well into next year.
Against the greenback the pound was seen dipping through to the middle of this year, falling to $1.53 in 3 months and to 1.52 in 6 months, before rebounding to $1.57 towards the end of 2012 as concerns about the U.S. economy re-emerge.
One-year forecasts ranged from $1.39 to $1.72.
2011 was an extremely difficult year for currency forecasters and market participants alike and the prospects for 2012 do not look much better, said Mitul Kotecha at CA-CIB, who was one of the top-five forecasters in Reuters FX polls last year.
The dollar will not be a star performer over 2012. We expect the dollar to be driven less by risk aversion and more by fundamentals as we go through 2012.
Sterling was down slightly against the dollar at $1.5594 on Thursday, around the level the poll saw it in a month, with the pound confined within last month's range of $1.5361-$1.5775.
The pound looks set for a far less volatile month compared with November, according to calculations derived from the standard deviation of forecasts from the poll.
Sterling volatility is expected to fall to 6.7 percent on an annualised basis from 8.6 percent last month.
(Polling by Deepti Govind and Rahul Karunakar; editing by Ron Askew)