Sterling stayed closed to an 11-month high against the euro on Thursday as ongoing concerns about the eurozone's debt crisis weighed on the common currency, while slightly better risk appetite supported the pound against the softer US dollar. Data showing Britain's economy unexpectedly grew faster than first thought between July and September had little impact, with economists forecasting a sharp slowdown at the end of this year and early in 2012.
The euro was flat on the day at 83.20 pence, having fallen to 83.06 pence during the day which was close to its 11-month low of 83.02 struck on Wednesday. Traders said Wednesday's break below the 83.30 level was significant, equating to the key 1.20 area in sterling/euro, adding next support was at the 2011 low of 82.85. UK gilts outperformed German Bunds on Thursday with the spread over 10-year Bunds four basis points tighter on the day and highlighting the view that investors were seeking the safety of British government bonds given the eurozone crisis.
Markets are on alert for what looks likely to be a widespread downgrade of eurozone countries' sovereign ratings after S&P warned of the consequences of a failure by politicians to reach agreement on how to solve the debt crisis. The pound held on to most of its gains made this week against the dollar in thin year-end trade. Sterling was flat on the day against the dollar at $1.5670, taking a breather after two straight days of gains.
It was lifted to $1.5729 earlier in the day on reported Middle Eastern demand and has gained nearly 0.8 percent on the week. Traders cited option expiries at $1.5700 which are likely to sway trade. Near-term resistance was at $1.5780, the late November high. "For now the $1.57/1.58 area might provide reasonable levels to sell again into 2012 as I think dollar will probably have a robust first quarter," said Stretch. Sterling on a trade-weighted basis was at 81.6, close to 9-1/2 month highs of 81.7.
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