Sterling inched up against the euro on Wednesday after the single currency lost momentum following a failed attempt to hit the year's high, leaving it vulnerable to more near-term selling. The pound also rose against the dollar after stronger-than-expected UK trade data kept the UK currency above trendline support.
The euro slipped 0.2 percent on the day to 85.88 pence, pulling back from a five-week high of 86.35 pence matched on Tuesday. "The pair has been failing to break resistance around 86.50/60 pence," said Toshi Honda, currency strategist at Mizuho, referring to levels near the euro's January peak of 86.72 pence.
He said escalating speculation that euro zone interest rates may rise in April could support the single currency in the near term, but concerns about the impact of tighter monetary policy on weak eurozone countries would limit gains. The pound edged up 0.3 percent on the day to $1.6207 in late London trade, after data showed the UK trade gap narrowed to a smaller-than-expected 7.06 billion pounds in January from 9.69 billion pounds in December.
Sterling hovered above the $1.6170/75 region, which contains its 21-day moving average and trendline support level drawn from the pound's lows hit in January and February. A sterling trader in London said he would sell sterling above $1.63, adding a fall below $1.61 would provide a good opportunity to pick up the UK currency.