LONDON: Sterling held steady against the dollar on Thursday, taking a breather after a sharp selloff the previous day, although it risked dropping to recent lows as investors concerned about the euro zone debt crisis sought safe-haven currencies.
The pound slipped against the euro as selling in the common currency eased. The euro was off a near two-year low against the dollar hit earlier in the day, as some booked profits on bearish bets. However, traders were cautious as Ireland held a referendum on an European fiscal treaty.
Sterling was flat at $1.5485, having shed 1 percent on Wednesday, its worst daily performance since early January. It fell to a four-month low of $1.5463 in Asian trade before recovering. Traders cited offers at $1.5500 with an option barrier at $1.5450.
"We are seeing a small correction as cable has been hit hard," a London spot trader said. "We may see a bit of a squeeze higher in cable especially ahead of US jobs data tomorrow and the long weekend here."
US payrolls data on Friday is likely to show the economy added 150,000 jobs in May, after creating 115,000 new positions in April, the fewest in six months. Such a number could support currencies like the pound that have a robust relationship with riskier assets like stocks.
The euro was 0.25 percent higher against the pound at 80.05, recovering from a two-week low of 79.71 pence struck on Wednesday. Despite the bounce, it was seen vulnerable to selling which could see it retesting the trough of 79.505 hit earlier this month, its lowest since November 2008.
"Any pullbacks should be capped around 81.00," Brenda Kelly, senior market analyst at CMC, wrote in a note. "Key support level remains at the 79.50 lows of this month. If we break below the lows at 79.50 then a slide towards 78.45 and the November 2008 lows is very much on the cards."
The euro was on track to end May with it second straight month of losses versus sterling as worries about a Greek exit from the currency bloc and problems in the Spanish banking sector drove investors away from the euro zone.
This has supported the British pound against the euro, but has seen sterling give ground against the dollar.
Bank of England policymakers have warned that if the euro zone crisis gets out of hand, the UK economy, which is already in recession, is likely to suffer more. That has kept alive chances of more monetary easing. More quantitative easing is likely to be a drag on the pound.
BoE deputy governor Charlie Bean said in an interview published on Thursday that the central bank could add to its programme of asset purchases and will do whatever it can to keep the economy recovering if overseas events worsen.
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