ET:Sterling trades near five-week high vs euro on Cyprus woes
LONDON: Sterling hit a five-week high against the euro on Friday, helped by an improvement in British economic data and mounting concerns about financial collapse in Cyprus.
The euro fell to 84.84 pence in early trade, its lowest since Feb. 11, before paring losses to last trade close to flat on the day at 84.99 pence.
Cyprus is running out of options to avert financial meltdown after talks in Moscow about a possible funding lifeline from Russia ended without result. Although investors were not panicking yet, developments in Cyprus have curbed demand for the euro.
The pound was also lifted by figures showing a lower UK public deficit and a rise in retail sales on Thursday, which prompted many investors who had been betting against sterling in recent weeks to cut their short positions.
The slightly more optimistic outlook for the economy saw sterling rise 0.1 percent against the dollar to $1.5188, within sight of Thursday's three-week high of $1.5210.
Some strategists said that while there was scope for further gains against the euro, sterling could struggle to press higher versus the dollar.
"Against the euro, sterling looks to be in better fundamental shape but against the dollar what matters is relative growth and relative monetary policy," said Raghav Subbarao, currency strategist at Barclays.
"U.S. growth is going to be better than the UK and the barrier for further policy easing is not very high in the UK."
Barclays forecast sterling to trade at $1.47 in six months.
Sterling gained earlier in the week after Bank of England minutes showed less support than expected for further asset purchases, but strategists said any deterioration in British data would rekindle speculation of more aggressive easing.
Investors are likely to stay focused on events in Cyprus, which could fan some demand to buy sterling as a relative safe haven alternative to the euro.
But Lloyds analysts warned continued uncertainty in the single currency bloc, which is Britain's largest trading partner, could drag the economy lower and weigh on the pound.
"The better retail sales data yesterday provided a modest boost to sterling, but it hasn't really changed the big picture view that the UK economy will continue to struggle, especially if the weakness in the euro zone continues," Lloyds said in a note.
