Sterling sees month lows versus euro on interest rate concerns

Tom Tong03/Jun/2011Currency Updates

GBP

Sterling fell to a four-week low against a broadly stronger euro on Thursday, hurt by dovish comments from a UK policymaker which added weight to the view that domestic interest rates will stay on hold for some time.

The euro rose 0.8% past the May 6 high as the pound extended falls suffered the previous day after surprisingly weak manufacturing data. The euro was also bolstered by Greece agreeing to new measures to cut its deficit. The single currency could further extend its gains if it closes above its 55-day moving average.

Sterling was closed flat against a weak dollar, erasing gains made earlier in the session after a purchasing managers’ survey showed UK construction activity grew more than expected last month.

EUR

The single currency extended gains over both sterling and the dollar as news broke of a new Austerity plan for Greece

Senior Eurozone officials have agreed, in principle, on a new three-year adjustment programme for Greece to run until mid-2014 and involve increased external funding, a source close to the negotiations said on Thursday.

The Economic and Financial Committee (EFC) of deputy ministers and senior officials of the 17-nation currency zone approved the Greek programme in talks in Vienna that ended after midnight.

The second programme for Greece, which will effectively supersede the 110 billion euro bailout agreed in May 2010, will involve some participation of private sector investors but in a limited capacity to avoid triggering a credit event.

USD

The dollar fell to a one-month low against the euro on Friday, with investors fretting whether US jobs data due later in the day might signal a protracted soft patch in the US economy’s recovery and a further slide in the dollar.

Disappointing US data spurred a drop in the 10-year US treasury yield to a six-month low earlier in the week as Moody’s issued a warning over US debt and dragged the dollar down to a one-month trough versus a basket of major currencies. However, traders said the bulk of the selling was driven by profit-taking after a rally on Wednesday, and currency analysts played down the significance of the Moody’s warning as a selling factor for the dollar.

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Written by Tom Tong

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