Pound falls versus euro and dollar

Friday June 26, 2009

LONDON: Sterling fell against the dollar and euro on Thursday as caution about Britain's economic outlook and weak share prices weighed on sentiment. Equity markets were broadly lower, with London's FTSE stock index down more than 1.0 percent in afternoon trade. Concerns about the economy were fanned the previous day by comments from Bank of England policymakers and a bleaker forecast by the OECD.

"The OECD forecasts and BoE comments are holding sterling back a bit," said Ian Stannard, senior foreign exchange strategist at BNP Paribas. "But the overall environment for risk appetite is favourable, and that should be favourable for sterling." Sterling slipped to a session low of $1.6234. By 1336 GMT, it was down 0.8 percent at $1.6265.

Traders said the pound's decline was accelerated when stop-losses were hit near $1.63 and below. Key technical support is seen around $1.6180. Bank of England Governor Mervyn King said on Wednesday that economic recovery could still be a "long, hard slog" despite encouraging recent data, in a sign that the central bank is in no hurry to tighten policy.

The Organisation for Economic Co-operation and Development forecast that Britain's economy will shrink 4.3 percent this year, its fastest pace of decline since World War Two, and stagnate in 2010. The dollar edged up as risk sentiment was soured by data showing US jobless claims unexpectedly rose in the past week.

The euro was up 0.7 percent at 85.52 pence, stuck in a recent range between 84 and 86 pence. "Despite comments on sterling weakness, we expect euro/sterling will remain rangebound around 86 pence in the medium-term," said UBS analysts in a note.

The euro was also buoyed after the Swiss National Bank was seen buying large amounts of euros on Wednesday to stem a rise in the Swiss franc, and allegedly again on Thursday. Currency intervention has been a part of the Swiss central bank's easing policy since March.


(Reuters)