LONDON: Sterling slipped from an 11-day high against the euro on Monday after data showed German business morale had rebounded in November, offering some relief to the battered common currency.
The euro had come under intense pressure, dropping towards two-year lows against the dollar, after European Central Bank chief Mario Draghi said on Friday that "excessively low" inflation had to be raised fast by whatever means necessary, prompting bets on further stimulus in the euro zone.
Draghi said there was no sign of economic improvement in the months ahead and that the ECB would expand and step up its programme to pump more money into the economy if its current measures fell short of lifting inflation.
The euro was up 0.25 percent at 79.315, recovering from an earlier low of 79.035 pence after the Munich-based Ifo think-tank said its business climate index had risen to 104.7 in November from 103.2 in the previous month.
"The Ifo has given temporary relief but any bounce in the euro will be sold into. Euro/sterling is likely to find resistance at around 79.50 pence," said a spot trader.
In contrast to the euro zone, where investors are pricing in more quantitative easing, in the UK traders are still looking for the Bank of England to tighten monetary policy. However, the expectations of a rate hike have been pushed back to the fourth-quarter of 2015 from mid-2015, putting pressure on the pound.
Sterling slipped to $1.5642 against the US dollar. Investors are increasingly staying away due to signs of moderating growth in the UK economy and increased political risks ahead of a national election next May.
"The problem with sterling/dollar at the moment is that with optimism for a rate hike next spring now appearing to be nothing other than wishful thinking, and with the UK general election starting to get attention, investor attraction towards the pair is limited," said Jameel Ahmed, chief market analyst at FXTM.
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