Sterling dropped to an eight-month low against the euro on Thursday as UK economic concerns hurt the pound while the euro benefited from ebbing euro zone debt worries and year-end demand. The euro was last up 0.3 percent at 82.16 pence, having earlier hit a peak of 82.19 pence, its highest since late April. A break above the April 25 peak of 82.22 pence could see the euro target 82.765 pence, a high hit on April 10.
The pound's falls against the euro helped push its trade-weighted index to a two-month low of 83.2. "People are more bullish on the euro, while the talk of the possibility of a UK ratings downgrade and the much publicised woes of the UK economy means there may be more scope for euro/sterling to move higher," said Richard Wiltshire, chief FX broker at ETX Capital. "The euro is looking quite perky and I wouldn't be surprised if euro/sterling makes new highs in this thin liquidity over the next few days."
However, he said the pound's movements were still likely to be driven mostly by sentiment towards the euro and the dollar. Sterling was last up 0.2 percent at $1.6160, supported above its 21-day moving average at $1.6129. But traders said any gains were likely to be limited, with offers reported ahead of $1.6210.
Elsewhere, the pound continued to rise against a broadly weaker Japanese yen on expectations that the new government of Prime Minister Shinzo Abe will push to weaken Japan's currency and implement aggressive stimulus. It rose to 138.98 yen, its highest since April 2011. One of their top trades for 2013 is to sell sterling against the dollar, with a target of $1.5050.
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