ET:Sterling hits fresh low versus euro on UK economy worries
LONDON: Sterling fell to its lowest in more than a year against the euro on Wednesday on growing concerns about a weakening UK economy just as euro zone debt worries ease.
The euro rose 0.3 percent on the day to 85.90 pence, its highest since early December 2011. Traders said the euro was likely to run into offers before a reported options barrier at 86.00 pence.
UK mortgage and consumer credit lending data at 0930 GMT is expected to show a small improvement in December and analysts said this may help the pound off its lows. However, any gains were expected to be limited given concerns that Friday's purchasing managers' survey on manufacturing for January could be weak.
Against the dollar the pound was down 0.15 percent at $1.5737, though it stayed above the $1.5674 struck on Monday, its weakest since late August. It remained below chart support at $1.5855, the 200-week moving average.
The pound has stayed under selling pressure since figures last week revealed the UK economy shrank more than expected in the fourth quarter, raising concerns about a possible credit ratings downgrade and the prospect of more monetary easing.
The economy will slip into another recession if it shrinks again in the first quarter. Friday's PMI data will give an indication of how it is faring at the beginning of 2013, though economists believe January's bad weather may have hurt growth.
"I don't think sterling will gain much respite, especially ahead of Friday's PMI data, and it looks like 86 pence is beckoning for euro/sterling," said Richard Driver, analyst at Caxton FX.
"There is no good news for sterling. Other than a short squeeze higher, it's hard to see where any gains are going to come from. It's still a sell on rallies, not a buy on dips."
The euro, however, was expected to extend gains after it broke above $1.35 against the dollar, with sentiment towards the currency lifted after upbeat German data last week and by signs that European banks may have turned a corner.
The pound's trade-weighted index was at 80.6, matching an 11-month low hit on Monday.
"Today's mortgage approvals and money (supply) data shouldn't be negative enough to provide renewed impetus to sterling bears, so look for the modest recovery to continue with $1.58 and 85 pence nevertheless likely to be difficult to break," analysts at Lloyds said in a note to clients.
