The euro fell to a fresh nine-month low against sterling on Tuesday after comments by German Chancellor Angela Merkel unsettled investors already disappointed by the outcome of last week's European Union summit. Selling of the single currency accelerated after sources said Merkel has rejected any suggestion of raising the funding limit of Europe's future bailout fund.
The euro dropped 0.5 percent to 84.16 pence, its lowest level since February 22. Bids are seen ahead of 84 pence, where traders cited the presence of an option barrier that is scheduled to roll off on Thursday. Market players said the common currency looked vulnerable to more losses, having broken below key technical levels, while the pound was likely to benefit from inflows into UK government bonds from investors seeking safety from eurozone debt woes.
With the euro having broken below its 200-week moving average, currently 85.75, for the first time since 2007, technical analysts say this leaves the door open to a fall to around 83.85 pence, another support level drawn by connecting lows hit in 2008 and 2010.
Sterling fell around 0.5 percent against the dollar to $1.5510, its lowest level in more than two weeks, as jittery investors reached for the relative safety of the world's most liquid currency. The pound's gains versus the euro saw the Bank of England's trade-weighted sterling index rise to a one-month high of 80.9, within striking distance of its November 11 high of 81. If the index rises above 81.