Sterling rose to its highest in almost 10 months against the euro on Wednesday as the lack of a resolution to the eurozone debt crisis and the risk of sovereign downgrades in the bloc caused investors to shy away from the common currency. Sterling remained largely driven by negative sentiment towards the euro, leaving the UK currency vulnerable as it fell to two-month lows versus the safe-haven dollar. Very thin liquidity was exacerbating moves, traders said.
The pound showed little reaction to data showing the UK jobless claimant count rose less than expected last month. The euro fell as low as 83.73 pence, its weakest since February 18 and below a reported option barrier at 84.00 pence that traders said had previously provided strong support. It later clawed its way back to 84.03, down 0.2 percent on the day.
Technical analysts said the outlook was negative for the euro while it held below the 200-week moving average at 85.75 but strong demand was expected from corporates ahead of 83.33 pence, equivalent to the 1.20 euro level in sterling/euro. Gains against the euro pushed sterling's trade-weighted index to 81.0, matching its highest level since March.
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