Sterling gained against the dollar on Friday, as risk appetite improved on expectations that Italy will push through tough austerity measures with better US data that showed consumer sentiment rising to its highest in five months also helping. Stop-loss buying in sterling in thin markets helped it to cut losses against the euro.
The euro had gained earlier in the day as investors bought back the common currency after a fall to eight-month lows this week. Against the dollar, sterling rose 0.9 percent to $1.6071, triggering stops above $1.6025 and $1.6010 with higher stock markets also helping.
Those gains gathered steam after data showed US consumer sentiment rising to its highest level in five months in early November as Americans felt better about the economic outlook, a survey released on Friday showed. "Sterling is not being driven by domestic UK fundamentals," said Chris Walker, currency strategist at UBS. "Under normal circumstances it would have sold off, given the prospect of more quantitative easing, but the problems in the eurozone should see it supported."
Against the euro, sterling was flat. It was last trading at 85.44 pence, having risen to as high as 85.87 earlier in the session as Italian bond yields pulled away from recent highs of well above 7 percent-considered unsustainable levels for the eurozone's third largest economy to borrow funds. The pair had fallen to a eight-month low of 84.86 on Thursday and is on course to post losses for the second straight week.