LONDON: Sterling fell against the dollar and gave up gains versus the euro on Friday after weak UK industrial output numbers rekindled recession fears, though worries about euro zone debt looked likely to support the pound in the near term.
Industrial output unexpectedly fell 0.4 percent in January, data showed. Economists had forecast a 0.3 percent rise.
The numbers contrasted with a recent strengthening in business surveys and signs of a pickup in overall economic activity and are likely to reinforce concerns that Britain can avoid a slump.
That in turn keeps alive chances that the Bank of England will provide more stimulus through another bout of quantitative easing, which is usually negative for the currency.
Sterling was down 0.4 percent against the dollar at $1.5757 , falling from $1.5790 before the industrial data was released. The pound had chart support at the 100-day average at $1.5710 and the 55-day average at $1.5670.
"The UK industrial data was a poor number and cable has slipped a bit, but these numbers are no game-changer," said Peter Kinsella, currency strategist at Commerzbank. "The drop in activity is more cyclical than structural and one has to look at it from the longer term perspective."
Sterling was flat against the euro, shedding earlier gains after the single currency came under broad pressure, with investors refocusing on worries that other euro zone strugglers like Portugal may have to restructure their debt after Greece successfully closed its bond swap with private creditors.
Traders said this uncertainty is likely to spur more capital inflows to UK assets such as gilts from investors seeking to exit the euro zone, and could see the euro slip towards the 80 pence mark in the coming months.
"It is not all that gloom and doom in the UK," said Stuart Frost, head of Absolute Returns and Currency Fund at RWC Capital. "We expect cable to trade in the $1.57-$1.60 band, but the best way to express a slightly optimistic view is through the euro which we expect to ease towards 80 pence."
The euro was flat against the pound at 83.87 pence, rising from 83.74 pence before the UK data. The common currency has gained for three straight sessions this week and is ripe for some profit taking, with a Swiss investor cited as a seller against the pound.
The euro rose to a peak of 83.99 pence on Thursday, its strongest in more than a week, when it stopped shy of reported offers just above 84 pence. But trade was slow with most investors cautious of initiating fresh positions ahead of US jobs numbers later in the day.
There is some anticipation of a solid US jobs report for February which could support riskier assets and currencies.
"US non-farm days are usually quiet," said a London-based spot trader. He said the euro could earn a short-term reprieve once the International Swaps and Derivatives Association rules on whether the Greek debt deal will trigger a payout on credit default swaps used by some investors to insure their bonds.
The Greek government said 85.8 percent of its 177 billion euros of Greek-law bonds had been voluntarily submitted for the swap and that it would use collective action clauses to force losses on hold-outs and boost participation to 95.7 percent.
ISDA officials will meet at 1300 GMT to judge if Greece's bond swap was a "credit event", triggering a payout on CDS contracts.
"Once that is out of the way, everyone will realise it's like putting a sticking plaster on a gaping wound Portugal, Spain will lurk in the background and it'll get sold off again," the trader added.
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