* Euro falls after Bundesbank downgrades growth outlook
* Sterling vulnerable to concerns about UK rating
* Investors look ahead to U.S. non-farm payrolls at 1330 GMT
By Philip Baillie
LONDON, Dec 7 The pound hit a two-week high on
Friday against the euro, which came under broad pressure after
Germany's central bank cut its country's growth outlook.
The Bundesbank report came a day after the European Central
Bank predicted the euro zone economy would likely shrink next
year, leaving the door open for future interest rate cuts, which
sent the euro broadly lower.
Sterling showed little reaction to data showing UK factory
output in October posted its biggest drop since June,
reinforcing concerns the economy will shrink again in the final
three months of the year having just exited recession.
"For euro/sterling we have had more of a euro move in
reaction to the ECB meeting on Thursday but sterling has been
quite resilient in terms of UK data even though production was
worse than expected," said Saeed Amen, currency strategist at
The euro fell 0.3 percent to 80.53 pence, its
lowest level since Nov. 22, and dipping below support from the
200-day moving average at 80.57 pence.
It came under renewed pressure after ECB Governing Council
member Jozef Makuch said the ECB may cut interest rates next
year if the euro zone economy does not improve.
Market players reported bids at 80.50 and 80.30 pence that
could cap further losses.
Against the dollar, sterling was down 0.2 percent at $1.6021
having retreated from a one-month high of $1.6131 hit
earlier in the week.
Investors were also looking ahead to U.S. employment data at
1330 GMT. Commerzbank strategists said the dollar could rally if
the number of non-farm jobs added is greater than the 93,000
forecast, as investors may pare back bets of further policy
easing from the U.S. Federal Reserve.
The Fed's Open Market Committee meets on Dec. 11, when it
could extend long-term asset purchases, boosting risk appetite
and potentially helping the pound, Nomura's Amen said.
UK GROWTH UNCERTAIN
Some strategists said the pound's strength against the euro
could be short-lived.
Investors are wary of buying sterling after UK finance
minister George Osborne said this week Britain would miss
debt-reduction targets, raising concerns the country could lose
its prized AAA credit rating.
"Fourth quarter growth is going to be very weak in the UK
and Chancellor Osborne's statement did not put a bright shine on
things. Following that we have got a heavy probability of a UK
(rating) downgrade and that's not going to be good for
sterling," Peter Kinsella, FX strategist at Commerzbank.
Disappointing UK data could reignite the argument for more
monetary easing from the Bank of England, although policymakers
opted to hold fire at their meeting on Thursday.