Sterling rose against the dollar on Thursday, pulling away from eight-month lows as a co-ordinated move by central banks to address banks' problems securing dollar funding boosted market sentiment, lifting riskier assets and currencies. Gains were limited, however, with sterling seen vulnerable to more selling due to worries a weak UK economy could prompt the Bank of England to opt for further monetary easing.
Analysts also said the boost from the central bank announcement, which will ease funding problems faced by eurozone banks due to the sovereign debt crisis, was unlikely to last because it did not tackle the root cause of the problems. "This is more a sticking plaster than something that will help the patient recover. It will boost risk sentiment but this is likely to be transient, not long-lasting," said Simon Smith, analyst at FXPro. Sterling was up 0.3 percent against the dollar at $1.5809, off the day's high of $1.5869 but staying comfortably above an eight-month low of $1.5706 hit on Wednesday. Against the euro, the pound fell to a one-week low as the single currency rose broadly in the wake of the liquidity announcement.
The euro was up 0.5 percent at 87.71 pence, having hit a high of 87.905 pence which roughly coincided with technical resistance at its 55-day moving average. It held above its 200-day moving average around 86.99 pence and a weekly close above that could signal further gains for the single currency.
The single currency hit a six-month low against the pound on Monday at 85.31 pence as it came under broad selling pressure on speculation about a possible Greek debt default. Earlier, sterling drew support from UK retail sales data that was not as bad as forecast.