Sterling dipped against the safe-haven dollar on Tuesday as initial positive sentiment towards a Greek bailout deal waned, while a fragile economic outlook for the UK kept investors wary of buying the pound. Sterling also underperformed the euro, trading within sight of a seven-week low on reported heavy selling by model funds.
Euro zone finance ministers finally approved a second bailout for Greece overnight that removed the threat of a disorderly default next month but was seen as unlikely to solve the debt-laden country's economic woes.
Sentiment towards the single currency was lukewarm amid choppy trade, supporting demand for the dollar against perceived riskier currencies including sterling. Market players also said a large sterling sell order from a European investment bank weighed on the pound. Still, risk appetite and US equity markets picked up later in the European session, boosting the euro. Analysts said the Greek deal was at least a step in the right direction.
"What came out of Greece last night was mildly positive, although there is still a long way to go and the market is cautious," said Gavin Friend, currency analyst at National Australia Bank. The pound was down 0.2 percent on the day at $1.5811, after initial news of the Greek deal prompted it to rise to $1.5865. Resistance was at the 200-day moving average of $1.5913, together with this month's high of $1.5929.
The euro rose 0.5 percent against the pound to 83.95 pence, after earlier hitting a session high of 84.03 pence on demand from model funds, with Swiss investors also cited as buyers. Offers reported around 84.00/10 pence were expected to cap gains and stop loss orders were seen through 84.20 pence. Analysts said 84.09 pence was a crucial level of resistance for the euro, where it has failed repeatedly since the end of December. "A clear break of 84.10/15 and quite a few people will be looking for a move to 85 the figure," said Friend.
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