LONDON - STERLING fell to a seven-week low against the euro on Monday, dented by broad gains in the single currency ahead of the results of stress tests on European banks later this week.
Traders said sterling was driven by movements in the euro, particularly as key UK news was not due until later in the week, with Bank of England minutes on Wednesday and second-quarter gross domestic product data on Friday.
Improved optimism towards the euro has prompted investors to reduce previous short positions on the single currency, including against the pound, while they shrugged off hawkish comments from a UK policymaker.
'Sterling is being caught in the maelstrom of what's going on with the euro. Euro/sterling is bid on the back of what's going on in euro/dollar, which is forcing cable lower,' said Gavin Friend, currency strategist at nabCapital. 'The size of the short euro positions being squeezed is pushing the euro up against everything.'
Potentially sterling-positive M&A news also failed to buoy sterling, with France's GDF Suez reviving tie-up talks which could see it take a majority stake in Britain's International Power. At 1149 GMT, the euro was 0.3 per cent higher at 84.74 pence, having hit a high of 84.88 pence, its strongest since May 31.
'The unexpected break above the 84.00 level (in euro/sterling) throws into doubt our lower euro scenario and now targets the 85.20 level. The 0.8400/10 area should now act as significant support for this move higher,' said Michael Hewson at CMC Markets. -- REUTERS
