LONDON: Sterling fell to three-week low against the dollar and slipped against the euro on Thursday after British industrial output rose much less than expected in March, dousing hopes for an upward revision to UK growth.
The Office for National Statistics said that industrial output rose 0.3 in March after a 1.2 percent fall in February, less than half the 0.8 percent gain forecast by economists.
Upward revisions to the Bank of England's inflation forecasts on Wednesday had boosted sterling and the chances of a rate hike by year-end, but in Thursday's data forced markets to reassess that view, with a hike now pushed back to 2012.
"Given the surprise drop in the purchasing managers' indices this report is likely to add to the caution in some quarters about the sustainability of UK growth," said James Knightley, economist at ING.
Sterling fell around half a cent to a three-week low of $1.6256 against the dollar, triggering stop-losses through $1.6290 and $1.6280. It was last back at $1.6282, down around 0.4 percent on the day.
Technical analysts said a daily close below the 55-day moving average at $1.6287 would open up potential for a move towards one-year trendline support around $1.6050.
The euro rose around 20 pips to a session high of 87.28 pence, moving further away from an earlier seven-week low against the pound of 86.73.
It was last trading at 87.05, up 0.3 percent for the day, with the common currency taking a slight hit after a surprise fall in euro zone industrial production in March.
"It looks like the euro's based temporarily after a big move down from above 90 pence. We don't think it will go back to 90, but it can get back towards 88 pence before trying to establish another move lower," said Kathleen Brooks, research director at FOREX.com.
Technical analysts said euro/sterling would need to break below a tough area of support for fresh losses to materialise.
"EUR/GBP continued to break lower and remains on course for 86.70, the 38.2 percent retracement of the entire move from the June 2010 low. This is also the January 2011 high and we would allow it to hold the initial test and provoke some consolidation," said technical analysts at Commerzbank.
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