LONDON: Sterling rose to its highest in more than two weeks against the euro on Monday on a weaker-than-expected German sentiment survey and uncertainty over whether and when Spain will seek a bailout.
Traders said the pound may also get a lift from farm subsidy payments due on Friday that the EU makes to the UK, with talk this could be as much as 3 billion euros, as well as from reported flows related to a dividend payment.
The euro fell 0.5 percent to 79.545 pence, breaking below the 100-day moving average at 79.64 pence to mark its weakest since Sept. 7.
More losses could see it target the early September low of 78.87 pence.
The single currency came under selling pressure after a weaker-than-expected German Ifo sentiment survey raised concerns that the euro zone's largest country may be struggling.
There were also worries about Spain and Greece, with Spanish Economy Minister Luis de Guindos saying on Saturday Spain will not rush to seek external aid and Greece yet to secure a deal on an austerity package with its international lenders.
"The euro has drifted lower, with the Greek issue weighing and Spain still prevaricating," said Michael Derks, currency strategist at FXPro.
The European Central Bank's plan to ease the region's debt crisis by buying the bonds of indebted countries has lifted the euro recently, but it cannot implement this plan until a country requests aid.
However, Derks said any euro falls may represent a buying opportunity.
"We could start to see the euro bounce a bit. A lot of people are still very short of euros and sentiment has changed more towards people looking to buy (euros) on any weakness."
Sterling was steady against the dollar at $1.6217, off a near 13-month peak of $1.6310 reached on Friday when it was helped by UK borrowing data that was not as bad as many in the market had expected.
With little in the way of UK events or data, analysts and traders said the pound was likely to be driven by events elsewhere, as well as by month-end and quarter-end flows.
Analysts at ING forecast the pound to rally this week, buoyed by the EU farm subsidy payments while they expect the dollar to stay weak following the US Federal Reserve's aggressive monetary easing announced earlier this month.
This could lift sterling as high as $1.65/$1.66, they say.
However, concerns remained about UK economic fragility, with the latest borrowing data suggesting the country may miss finance minister George Osborne's deficit-reduction targets.
Comments
Comments are closed for this article.