Sterling falls vs euro as German economic sentiment improves

Tue Dec 11, 2012 4:35pm IST

A statue of Ganesh, the deity of prosperity, is carried in a taxi to a place of worship on the first day of the ten-day-long Ganesh Chaturthi festival in Mumbai August 29, 2014. REUTERS/Danish Siddiqui

Ganesh Chaturthi Festival

During Ganesh Chaturthi idols will be taken through the streets in a procession accompanied by dancing and singing, and will be immersed in a river or the sea in accordance with Hindu faith.  Slideshow 

* Pound dips versus euro after better-than-forecast ZEW

* Sterling seen vulnerable to weak economic data

* BoE's King warns on growing currency competition

By Nia Williams

LONDON, Dec 11 (Reuters) - Sterling dipped against the euro on Tuesday, with the shared currency gaining after a better-than-expected German economic sentiment survey spurred some optimism among investors.

The ZEW survey of sentiment in the euro's zone largest economy rose sharply in December to enter positive territory for the first time since May.

That pushed the euro up 0.2 percent against the pound to a session high of 80.70 pence. It recovered from a near three-week low of 80.35 pence hit on Monday after investors were unsettled by Italian prime minister Mario Monti's surprise decision to resign early.

Sterling was steady against the dollar at $1.6078, with technical charts showing support around the 55- and 50-day moving averages at $1.6036 and $1.6023 respectively.

Strategists said the pound looked vulnerable to selling on concerns about weakness in the UK economy.

"Euro/sterling has seen a move on the back of the ZEW, while looking at cable (sterling/dollar) around $1.61, it still seems a little elevated," said Jeremy Stretch, head of FX strategy at CIBC World Markets.

"With the risk we could see a further trigger of fragility in labour market data tomorrow, it seems in the short term any rallies could be worth fading."

A Reuters consensus forecast shows the UK unemployment rate, is expected to be unchanged at 7.8 percent when it is released on Wednesday, but any unexpected rise could knock the pound lower.

Concerns about the UK economy have been increasing since finance minister George Osborne downgraded growth forecasts and said the country will miss debt-cutting goals in his mid-year budget statement last week, raising the possibility the country will lose its prized AAA credit rating.

A survey showing UK house prices fell faster than expected in November added to those worries, although with no other domestic data scheduled for Tuesday sterling was expected to take its lead from developments in the euro zone.

Concerns about political uncertainty in Italy were expected to limit both sterling and euro gains against the highly liquid dollar, which is considered a safe haven currency by investors and tends to rally in times of market tension.

KING'S WARNING

Analysts said a speech from Bank of England governor Mervyn King in New York on Monday, in which he warned that too many countries were trying to weaken their currencies, was unlikely to impact the value of sterling.

The speech did however highlight the BoE's concern that the UK will struggle to boost exports while the pound remains relatively strong.

Trade-weighted sterling was last at 83.9, according to BoE data, within reach of the peak of 84.7 hit in September. A rise above that level would take the index to its highest since November 2008.

"This is not meant to be indicative of any kind of policy towards sterling," said Steve Barrow, head of G10 currency research at Standard Bank.

"All King is recognising is the possibility this is continuing to grow because the world is not recovering as many people thought it would. If monetary policy is very stimulative then countries may be tempted if they need growth to steal it from someone else through the exchange rate."

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Market Eye

REUTERS SHOWCASE

HSBC PMI

HSBC PMI

Factory activity expands at slower clip in August.  Full Article 

Modi in Japan

Modi in Japan

Japan aims to double India investment in 5 years - Nikkei  Full Article 

Market Outlook

Market Outlook

Indian shares headed for correction, but outlook strong - BofA Merrill.  Full Article 

India Infrastructure

India Infrastructure

RBI rule handicaps India's infrastructure hopes  Full Article 

Book Talk

Book Talk

Reema Abbasi and a glimpse of Pakistan’s Hindu past  Full Article 

China Economy

China Economy

Retreat in China's PMIs heightens calls for policy easing.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage