Sterling pared gains against the dollar on Friday, retreating from a session high hit on speculation of a Chinese investment vehicle providing funding to eurozone countries, as risk sentiment wavered following a European summit. The pound tracked moves in the euro during a choppy session, reflecting uncertainty over the outcome of an EU summit that did little to impress markets overnight.
Sterling was last trading almost flat at $1.5645. It retreated from a session peak of $1.5735 reached after a source said China planned to create a $300 billion foreign exchange vehicle, part of which would be focused on Europe. "Sterling is going sideways. It's failed to hold on to its gains but I think that's a scaling back of risk more than an anti-sterling sentiment," said Richard Wiltshire, chief FX broker at ETX Capital.
Against the euro, sterling stayed within sight of a one-month high. The pound has been benefiting from investors seeking euro alternatives due to the region's debt crisis. The euro was up 0.1 percent at 85.43 pence, but hovering near a one-month low of 84.96 pence hit on Thursday. Another break below 85 pence would leave it set to fall below the November 10 low of 84.86 pence, marking the euro's weakest level since March. Technically, the euro's outlook will be seen as bearish if it closes below its 200-week moving average at 85.70 pence. Meanwhile, more falls versus the dollar may see sterling target the December 6 low of $1.5562 and the late November low of $1.5423.
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