LONDON: Sterling hovered near a two-month low against the dollar on Thursday as widespread concerns about a possible Greek exit from the euro led investors to safe-haven currencies like the dollar and away from perceived riskier currencies like the pound.
The British pound could take a further blow if the second reading of UK first-quarter gross domestic product data showed the economy is in a deeper recession than earlier estimated.
Against the dollar, sterling was flat $1.5680, not far from $1.5668, its lowest since mid-March, struck earlier in the Asian session. It has tracked a sharp fall in the euro this week, which hit a near two-year low against the dollar as investors retreated to safe-haven assets. Near term support for the pound is seen around $1.5643 the 61.8 percent Fibonacci retracement from January lows to April's highs.
"A move higher should see the pair find resistance around $1.5770, however given the data out this morning and with uncertainty continuing to grip the markets this may be too much to ask," said Craig Erlam, market strategist at Alpari.
Against the euro, sterling was flat at 80.15 pence with a raft of economic data out of the euro zone likely to show that the region is in the midst of a slowdown.
That comes after yet another European Union summit made little progress in tackling the debt crisis with investors geared up for further turmoil. Many euro zone nations have been told to prepare contingency plans for a possible Greek exit.
More troubles in the euro zone will hurt an economic recovery in the UK with the latest minutes from the Bank of England showing that the door was open for more quantitative easing later in the year. This is likely to keep the pound on the defensive, traders say.
Quantitative easing involves printing cash to buy bonds and boost growth and tends to weaken the value of a currency by increasing its supply.
On Wednesday, retail sales data recorded their fastest monthly decline in more than two years in April. The weak start to the second quarter highlighted sluggishness in the economy and added to bets the BoE will opt for another cash injection.
"Today's revision is expected to leave the figure at minus 0.2 percent," Michael Hewson, senior market analyst at CMC wrote in a note.
"However the surprise weakness in construction data last Friday could see a revision lower, which could tip the scales further towards the doves on the monetary policy committee in June."
