Sterling traded near a four-month low against the euro on Thursday, with the single currency supported by a solid Spanish bond auction, but it gained against a broadly weaker US dollar. The pound rose to as high as $1.6171, taking a cue from the euro's rise against the US currency, before easing to $1.6145, still up 0.65 percent for the day.
Traders said there was an option strike at $1.6100 rolling off on Friday in New York trade and that was likely to offer sterling some support. The euro climbed as high as 87.14 pence, its strongest since early November, after Spain drew solid demand at a bond auction and on the view that eurozone interest rates were likely to rise soon. But traders said its near-term upside was capped by UK corporate demand for the pound.
Analysts see further downside risks to sterling as investors pare back speculation of a UK interest rate rise given a still fragile UK economy, and due to market jitters stoked by the earthquake and nuclear crisis in Japan. The euro last traded 0.22 percent higher on the day at 86.86 pence. Against the yen, the pound traded roughly 2 percent higher on the day at 126.78 yen, pulling away from a two-year trough around 123.48 yen hit in earlier trade.
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