* Graphic: sterling and gilt yields bit.ly/2dgAXn1
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv
By Jemima Kelly
LONDON, March 10 Sterling skidded to an
eight-week low against the euro on Friday, as the single
currency rallied broadly on news the European Central Bank had
discussed the possibility of raising interest rates before
ending its quantitative easing programme.
Sources told Reuters that some ECB policymakers had raised
the possibility of a rate hike before the end of QE, though the
discussion was isolated and did not enjoy any broad support.
The pound lost almost 1 percent against the euro to hit
87.79 pence after the news, its weakest since Feb.
17, with the euro already boosted by comments on Thursday from
ECB chief Mario Draghi that investors saw as somewhat hawkish.
That left sterling on track for its weakest fortnightly
performance against the euro in five months. The pound has also
been hurt by worries that Britain's economy is heading for a
slowdown on the back of sluggish consumer spending, as well as
talk of a second referendum on Scottish independence.
Data showing British factory output had its strongest growth
in nearly seven years in late 2016 and early 2017, with exports
also growing quickly, had only a marginal - and short-lived -
positive effect on sterling.
While the data followed other strong manufacturing numbers
earlier this week, the sector accounts for only around 10
percent of Britain's economy.
Other numbers continue to suggest consumers, whose spending
helped cushion the shock vote for Brexit last June, are turning
more cautious. Separate data on Friday showed Britain's shops
endured their worst fall in February sales since 2009.
"We're now seeing the consequences of the Brexit vote
feeding through into the economy, whereas immediately after the
vote the data was surprisingly strong," said Alex Edwards, head
of dealing at money transfer company OFX in London.
"But I think a lot of the negatives around Brexit are quite
heavily priced in already, and ... sterling is going to be
supported around $1.20 - I can't see it falling much below
that," he added.
Sterling inched down 0.1 percent to $1.2154, having
earlier hit an eight-week low of $1.2133. It has lost around 2.5
percent against the greenback in the past two weeks, with its
falls exacerbated by a simultaneous dollar rally on the view the
U.S. Federal Reserve will hike interest rates next week.
"If we've had this kind of move, and we know that sterling
relative to fair value is one of the cheapest around - if not
the cheapest - I just think there’s reluctance to add to
shorts," said UBS Wealth Management currency strategist Geoffrey
Yu, in London.
(Editing by Ed Osmond)