* Pound dips versus euro after better-than-forecast ZEW
* Sterling could be vulnerable to weak UK data
* BoE's King warns on growing currency competition
By Philip Baillie
LONDON, Dec 11 Sterling dipped against the euro
on Tuesday, with the shared currency gaining after a
stronger-than-expected German sentiment survey spurred some
optimism among investors.
The pound rose against the dollar however, with some
investors speculating the Federal Reserve could signal more
aggressive monetary easing at its latest policy meeting that
ends on Wednesday.
The German 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 helped push the euro up 0.3 percent against
the pound to a session high of 80.77 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.
Some strategists said the pound could be vulnerable to more
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 forecast shows the UK unemployment rate, released
on Wednesday, is expected to be unchanged at 7.8 percent. Any
unexpected rise could knock sterling.
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.
Sterling was up 0.2 percent on the day at $1.6115,
with technical charts showing support around the 55- and 50-day
moving averages at $1.6036 and $1.6023 respectively.
Weaker-than-expected U.S. small business sentiment index and
dragged slightly on the dollar, said Marc Ostwald, FX and rates
strategist at Monument Securities.
Separate data also showed the U.S. trade deficit widened in
October, putting more pressure on the dollar.
In the short-term some strategists said the pound could
track a rise in the euro if the Federal Reserve pursues more
aggressive policy easing. Monetary easing tends to weaken the
dollar broadly by increasing its supply.
But in the longer-term the pound looked fragile against both
the euro and dollar.
Sterling has gained from being seen as a safe-haven
alternative to the euro this year, but as concerns of a euro
zone break-up have receded sterling's appeal has also
diminished, some strategists said.
"I would expect sterling to come under pressure on a
domestic perspective, the fact that it is not the euro is not
going to be good enough," said Monument's Ostwald, forecasting
the euro would rise to 85 pence next year.
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.
But the speech did highlight the BoE's concern that the UK
will struggle to boost exports while the pound remains
Trade-weighted sterling was last at 83.8, 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.