RTRS:Sterling holds ground on dollar but downside risks build
* Sterling near 11-day low of $1.5698 versus dollar
* Risk reduction pauses but technical outlook for pound weakening
* Euro/sterling may see short-term rebound
By Neal Armstrong
LONDON, March 7 (Reuters) - Sterling crawled away from recent lows versus the dollar on Wednesday as this week's pullback in risk sentiment kept investors cautious on the currency and it was likely to stay pressured by a fragile UK economy and a weak technical outlook.
Sterling had fallen to 11-day lows of $1.5698 versus the dollar on Tuesday as uncertainty over private creditor take-up for a Greek bond swap needed to avoid a disorderly default hit risk sentiment and lent broad support to the safe- haven dollar.
An absence of UK data on Wednesday left the pound still vulnerable to swings in risk sentiment. It was up around 0.1 percent for the day at $1.5735 in early European trade as equity markets gained some respite.
"In cable $1.60 is looking like the peak of the recent recovery and the risks are now building for a deeper break to the downside," said Ian Stannard, head of European fx strategy at Morgan Stanley.
"Positive data surprises from the UK have provided some support of late but we think the domestic picture will start to run out of steam and sterling will be back under pressure," he added.
Traders reported sterling demand placed around the $1.5700 area and stop-loss sell orders below. Key support was around the 55-day moving average at $1.5660, together with a cluster of recent lows around $1.5650.
"GBP/USD has eroded its 2-month support line. Focus has shifted to more important support at 1.5650/43 - this will need to be fallen through for a top to be confirmed," said Commerzbank in a note, recommending short sterling positions against the dollar with a near-term target of $1.5650.
Recent positive UK data have dampened the prospects of more monetary easing from the Bank of England, which is widely expected to keep interest rates on hold and refrain from further asset purchases in its monthly policy announcement on Thursday.
The euro was close to flat against sterling at 83.45 pence , under pressure ahead of Thursday's deadline for Greece's debt swap. It remained well below its February highs near 85.00 pence.
"We may well see a near-term rebound to 84.00/20 for euro/sterling given its sharp decline but once the Greek bond swap is out of the way the focus will be back on euro zone economic fundamentals which will keep euro/sterling under pressure," said Stannard. (Editing by Stephen Nisbet)
