Sterling slipped against the dollar on Friday, tracking a fall in the euro as investors suddenly piled into the US currency, which often benefits in risk-averse markets. Traders said investors were getting jittery about demand for euro zone assets as Fitch downgraded Greece's sovereign rating and warned that any extension of its bond maturities would be considered a default.
The ratings agency's announcement came after Norway's sovereign wealth fund chief said the fund should reassess its investment allocations weights, which favour Europe at the moment. The news, along with a slide in oil and commodity prices, prompted selling in risky assets while raising demand for the dollar, the world's largest reserve currency, which knocked the pound.
"There's a general decline in risk appetite," said Adam Cole, global head of FX strategy at RBC Capital Markets. In late London trade, the pound fell 0.3 percent on the day to a session low of $1.6167, trudging down from a session high of $1.6275 hit early in the day. The euro fell nearly 1 percent on the day to 87.36 pence, with most of its losses being driven by hefty sales from a UK clearer earlier in the day.
"Euro/sterling failed ... to break resistance at 88.40 pence and some hefty sales from a couple of UK clearers has seen it move back below 88.00 pence," Citi analysts said in a note. The single currency broke below its 55-day moving average at 87.81 pence, and a close under that level may increase the bias for the euro's downside.
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