Sterling hit a fresh 16-month high against the euro on Friday and looked set to stay supported as investors concerned about eurozone sovereign funding pressures headed for the relative safety of the UK currency. However, the pound fell versus the dollar, which rallied broadly on the back of stronger-than-expected US nonfarm payrolls data that suggested the US economy is starting to improve after suffering for much of 2011.
The euro slipped to 82.39 pence, its lowest level since September 2010, before finding support from reported bids around 82.30-40 pence. Market players said the pound's strength was down to eurozone woes rather than strong domestic fundamentals, even though data on Thursday showed a pick-up in UK service sector activity. Those figures were tempered on Friday by data showing UK house prices fell 0.9 percent on the month in December, confounding expectations of a modest improvement. There was little impact on the currency. "I think euro/sterling will continue to go lower. All the problems that have caused eurozone bond markets to sell off in the fourth quarter have not only not been resolved, they look set to intensify," said Neil Mellor, currency strategist at Bank of New York Mellon.
Market players said the euro risked more selling versus the pound ahead of Italian and Spanish debt auctions next week that are seen as those countries' first major refinancing tests of 2012. While supported versus the euro, the pound suffered versus a broadly strong dollar after data showed US employment growth accelerated last month and the jobless rate dropped to a near three-year low of 8.5 percent. Sterling fell around 0.7 percent to $1.5376, before paring losses to trade around $1.5415 in late London trade.
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