Sterling ceded ground to a broadly firmer euro on Wednesday as the single currency was buoyed by growing hopes that euro zone policymakers will be able to navigate their way through the sovereign debt crisis. The pound eased from eight-week highs against the dollar as investors took profit on long positions. The euro was up 0.6 percent against sterling at 84.35 pence after rising as high as 84.53 during the afternoon.
"The euro is supported across the board - it's been the best performing G10 currency for the past five days," said Valentin Marinov, currency strategist at CitiFX. "Investors have responded to signals from euro zone officials that they will work on more comprehensive solutions to problems on the periphery." The UK jobless claimant count fells by 4,100 in December, confounding forecasts for a rise of 1,500 and after a revised 3,200 decline in November, but analysts pointed to the risks of a soft labour market in the months ahead as the public sector starts shedding jobs.
Higher than-expected consumer price inflation on Tuesday increased expectations that UK interest rates would need to rise soon and took sterling to an eight-week high of $1.6060. It slipped below the $1.60 level on Wednesday, but was still up 0.1 percent on the day at $1.5976. Next resistance was at $1.6090/95, the 78.6 percent retracement of a move from its November 4 high to its December 28 low of $1.5345.
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