LONDON: Sterling fell against the dollar for the first time in three sessions on Wednesday as risk sentiment turned softer, but safe-haven demand from investors seeking to cut exposure to the euro zone is likely to support the pound against the euro. Stocks fell while lower-risk assets gained after credit rating agency Standard & Poor's downgraded a number of European and U.S. banks. The move added to concerns about the health of the financial sector which have made banks increasingly wary of lending to each other. Sterling was last down 0.3 percent against the dollar at $1.5567, giving up some of the gains made in the past two days. Traders cited support at around $1.5470 -- the pound's low on Tuesday -- with intraday bids at $1.5430/40 and offers at $1.5620/30. Against the euro, sterling was slightly higher on the day. The euro was down 0.1 percent at 85.27 pence, with traders citing strong bids at 85.20 and month-end demand that are likely to check the euro's losses. The outlook for the single currency remains bearish, however, given the euro zone's escalating debt problems. In contrast, British finance minister George Osborne offered a fresh commitment on Tuesday to fiscal austerity plans aimed at curbing the UK's budget deficit. "We are seeing German bund yields rise and there will be investors seeking to get out of the euro zone (and) into the UK," said Gavin Friend, currency strategist at nabCapital. "What we have out of the UK is a credible plan to get back to growth and not too much risk-taking that could lead to a change in ratings." That is likely to underpin sterling against the euro in coming months, with a chance the euro could ease to around 84 pence, he added. Osborne unveiled a gloomy picture for the economy in the autumn budget statement on Tuesday, unveiling much lower growth forecasts and raising government borrowing targets. But he stuck to the government's tough austerity measures, which are now likely to extend beyond the next election in 2015. Given the debt problems afflicting the euro zone and the United States, analysts said having a credible plan to reduce the deficit should help the country retain its prized triple-A rating and encourage more flows into safe-haven UK gilts. That in turn is likely to support the pound, despite the prospect of more quantitative easing by the Bank of England and the risk of recession. More monetary stimulus is considered bearish for a currency as it increases the supply. Foreign investor inflows into UK gilts in October totalled 12.5 billion pounds, said to be the highest level in 18 months. That follows net purchases of 9.2 billion pounds in September. One of the reasons sterling has held above its October low of $1.5270, struck immediately after the Bank of England announced more quantitative easing, has been inflows from investors cutting exposure to the euro zone. "Despite the gloom from yesterday's Autumn Statement the pound has continued to hold up well, largely because we're not part of the euro," said Michael Hewson, market analyst at CMC. Not all was bright for sterling. Rating agency Fitch warned that Britain's ability to absorb further economic shocks while keeping its triple-A credit rating is "largely exhausted" unless the government takes further deficit-cutting steps. A fresh private sector survey showed British consumer confidence edged up slightly in November but was still close to a two-year low and the outlook remains gloomy..

Source