* 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 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
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.
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
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."