* 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 Nia Williams
LONDON, Dec 7 The British pound hit a two-week
high against the euro on Friday, with the shared currency coming
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 could shrink next year,
leaving the door open for future interest rate cuts.
Strategists said the pound's strength 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
The euro fell 0.2 percent on the day to 80.55
pence, its lowest level since Nov. 22, and dipping below support
from the 200-day moving average at 80.57 pence. Market players
reported bids at 80.50 and 80.30 pence that could cap further
"The Bundesbank downgrade and ECB downgrade are having an
effect but it's more a case of euro weakness than sterling
strength," said Peter Kinsella, FX strategist at Commerzbank.
"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
downgrade and that's not going to be good for sterling."
Against the dollar, sterling was close to flat on the day at
$1.6042 having retreated from a high of $1.6131 hit
earlier in the week.
The next focus for investors will be UK industrial and
manufacturing output data for October at 0930 GMT. Industrial
output is expected to recover from last month's steep decline,
but manufacturing data could show a slowdown.
"Production data for October should show a small improvement
versus September and thus get Q4 off to a reasonable start. It
is hard to see the data having a massive impact though, and
sterling/dollar is still languishing beneath $1.6060," said RBC
Capital Markets in a note.
Market players were also looking ahead to U.S. employment
data at 1330 GMT. Commerzbank strategists said the dollar could
rally if the number of jobs added are greater than the 93,000
forecast, as investors may pare back bets of further easing from
the U.S. Federal Reserve.