Sterling slipped against a broadly firmer euro on Thursday on weak UK data, strong demand at a Spanish debt auction and cautious optimism about the eurozone from European Central Bank President Mario Draghi. Unexpectedly weak UK industrial production figures and an estimate from the NIESR think-tank that Britain's growth slowed to 0.1 percent in the last three months of 2011 weighed on the pound.
As expected, the Bank of England left interest rates on hold on Thursday and opted not to increase its quantitative easing target. The euro gained as Draghi said the supply of cheap money released by the central bank was helping stabilise the banking system and the euro zone economy, which he expected to recover, albeit gradually. The euro rose by 0.8 percent against sterling to 83.50 pence, pulling well away from its recent 16-month low of 82.22 pence. Traders said it extended gains after breaking above stop loss orders at 83.30 pence.
"Draghi was less pessimistic than we'd expected. He didn't say the euro zone was heading towards recession or that there were major deflation risks and he was optimistic about the effects of the 3-year (cheap ECB loans)," said Richard Driver, analyst at Caxton FX. Against the dollar, sterling was up 0.1 percent at $1.5332, off a three-month low of $1.5279 in early trade.
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