Sterling rose against the euro on Monday as uncertainty about Spain encouraged investors to take profit on some of the single currency's recent strong gains, while the pound stayed close to a four-and-a-half month high against the dollar. The UK currency was unmoved by inflation data that did not change the balance of expectations over whether the Bank of England will increase its asset-buying programme later this year.
The euro lost 0.5 percent on the day to hit a low of 80.31 pence, breaking below reported stop-loss sell orders around 80.35 pence and pulling well away from Friday's three-month high of 81.14 pence. Concerns are growing about whether and when Spain will seek a bailout, while a German investor survey highlighted concerns about Europe's largest economy.
"We don't have anything dramatically new and bearish for the euro coming out. There is a little bit of worry about Spain again but it's just the market looking for a reason to justify a bit of profit-taking," said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets. "The euro has had such a good run recently. At the beginning of the month the low was just under 79, it has come all the way up to 81.14 on Friday and it was just as though the market was running out of momentum."
She said the euro may fall a little further, perhaps below 80 pence towards the 100-day moving average around 79.69 pence, but that this could be a good level to buy back the euro. Against the dollar, the pound was slightly weaker on the day at $1.6230 but it stayed in sight of Monday's peak of $1.6276, its strongest since late April.
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