Sterling outperforms weak euro

Sterling hit a one-month high against the euro on Monday after Greece's decision to hold a referendum on an EU bailout stoked concerns that the debt crisis was escalating and drove speculators to cut positions. The risk-averse sentiment in markets pushed investors towards the relative safety of the US dollar which outperformed sterling, pushing the British pound to $1.5889, its lowest since October 21. It was heading for its biggest single day loss since early October.
The prospect of a swift end to the eurozone's debt crisis shrank after Greek Prime Minister George Papandreou called a referendum on the latest bailout package, drawing calls from within his own party to step down. The euro fell against sterling, hitting the lowest since October 4, leaving September's low of 85.31 pence as the nearest support. A break below this level would take the euro to its lowest since March.
"I wouldn't be surprised if we saw the September low broken, and then we have the psychologically important level of 85 (pence) to target," said Audrey Childe-Freeman, EMEA head of currency strategy at J.P. Morgan private bank. Short-term momentum indicators like slow Stochastic and Moving Average Converage-Divergence charts indicate the euro's sell-off against sterling could have further to run.
On the back of the euro/sterling move, trade-weighted sterling rose to its highest since March 23 at 80.7. Adding momentum to the pound's slide against the dollar, an unexpected contraction in UK manufacturing activity drew attention to concerns about the economic outlook despite better-than-expected third quarter growth.