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Sterling dropped to its lowest in 1-1/2 years against a broadly strong euro on Thursday, weakening beyond 70 pence as investors continued to sell the currency on the view UK interest rates have peaked and may be cut. The pound, however, gained against a generally weak US dollar after stronger-than-expected UK retail sales and firm mortgage lending figures for August.
Sterling was also supported by comments from Bank of England Governor Mervyn King before Parliament's Treasury Committee at which he said cutting interest rates at the first sight of every problem was not the way to go.
But overall, sentiment on the British currency has remained bearish. "We have an environment that is not particularly supportive of sterling in the near term," said Audrey Childe-Freeman, senior economist, at CIBC World Markets.
By 1350 GMT the euro traded at 69.92 pence, up about 0.17 percent on the day after rising as high as 70.06 pence, according to Reuters data. The broadly strong euro rose above 70 pence for the first time since April 2006. Earlier in the session the euro rose above the key $1.40 level against the dollar for the first time since the launch of the European single currency in 1999.
Sterling rose half a percent to $2.0105, while the sterling trade weighted index was down 0.1 percent at 101.7. UK data showing retail sales were stronger than expected and higher mortgage lender numbers failed to sway expectations.

Copyright Reuters, 2007

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