Sterling tumbles

Sterling hit a six-week trough versus the euro and fell to a three-week low against the dollar on Friday, pressured by a drop in UK gilt yields as markets pushed back expectations for UK rate rises in 2011. The pound was also pressured as investors cut exposure to perceived higher-risk currencies and assets in the wake of a powerful earthquake in Japan which weighed broadly on equity markets.
"We are seeing a bit of a reality check, with people starting to realise there will be two, maybe three rate hikes in the UK, and that will be it for a while," said Gavin Friend, currency strategist at nabCapital. The move came as traders cut long positions in the pound in the wake of Thursday's Bank of England decision to keep interest rates on hold. Although the move had been widely expected, many had been positioned for the chance of an early rate hike.
The euro rose 0.5 percent versus sterling to a six-week high of 86.44 pence, beating the high hit on Monday in the wake of comments by European Central Bank President Jean-Claude Trichet hinting at a eurozone rate rise in April. Traders said a break of the 86.50 area would open up a test of the 2011 high at 86.72. While below this level, euro/sterling was expected to stay within its recent range, with support at the February low at 83.56 pence.
Sterling also hit a six-week low against a currency basket of 80.2. Against the dollar, sterling slipped to a three-week low of $1.5977 before recovering to trade at $1.6030, well below a one-year high of $1.6344 hit last week. Traders said stop-losses were hit on the break of $1.6000, while support was at $1.5962, the 38.2 percent retracement of sterling's rally from December to March, in line with the February low. The 55-day moving average also stood at $1.5953.