TS: Pound slides against euro as eurozone fears ease but makes gains against weak US dollar
The pound has slid to a three-month low of 80p against the euro as investors grow more optimistic about the single currency's chances of survival.
A pound now buys €1.249 on the currency markets - well off its recent peak of €1.285, and its lowest level since July 5.
Efforts to stave off the euro's collapse were ratcheted up last week, when the European Central Bank unveiled a bond-buying rescue plan aimed at Spain and Italy.
Pound watch: Efforts to stave off the euro's collapse were ratcheted up last week, causing it to rebound
However, the single currency faces another crucial test tomorrow when the German Constitutional Court is due to rule on the legality of eurozone bailout funds.
The ECB's move was a first step towards really tackling the euro crisis with a 'big bazooka', according to Chris Towner, director at currency specialist HiFX.
'Someone is taking control of the situation and we haven't seen that before,' he said.
More...
FOREIGN EXCHANGE:Check how the pound is doing here
Trade surprise prompts hope the economy is clawing out of recession
'This is what has helped the euro to strengthen.'
Towner predicted that the pound would carry on pivoting around €1.25 (80p to the euro) for the time-being.
He said currency traders were now likely to turn their focus back to the U.S., with more economic stimulus expected across the Atlantic and the presidential election coming up in November.
Anticipation of more money printing by the U.S. Federal Reserve has led to the dollar weakening against sterling fairly steadily since early June, and it is trading at 62p or $1.60 today.
Towner said: 'I think overall Fed action over quantitative easing is priced in. Arguably the U.S. dollar has been on the back foot because of that. The dollar could strengthen back.'
The dollar took another knock today after ratings agency Moody's threatened to downgrade the U.S.'s top AAA credit status unless it gets a grip on its debts.
Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, believes sterling is looking quite strong against both the dollar and the euro at present, despite its more recent dip against the single currency.
'I think that's more a euro story, with what happened last week with the ECB. The euro pressure is coming off,' he said.
He said recent strong economic data, such as manufacturing output and today's news of a narrowing in the the trade gap, had helped sterling.
'Activity picked up in July, and increased confidence in the pound,' he said.
