Sterling rose to a six-week high versus the euro on Friday as the shared currency stayed pressured by concerns over economies on the eurozone periphery, while the pound hovered above technical support versus the dollar. A lack of UK data left the focus on news that German gross domestic product (GDP) grew 2.2 percent in the second quarter, way above expectations of 1.3 percent, initially boosting the euro.
But euro gains were quickly offset when lacklustre results in an Italian bond auction triggered a further widening in sovereign eurozone spreads. "In spite of strong German GDP data, euro/sterling is down and that's due to concerns about peripheral eurozone economies," said Gavin Friend, currency strategist at National Australia Bank. At 1439 GMT, the euro was trading down 0.5 percent at 81.89 pence after falling to a 6-week low at 81.83.
"Euro/sterling is being driven by sovereign risk problems in the euro zone which haven't gone away," said Melinda Burgess, currency strategist at RBS. The pound pared earlier gains versus the dollar to trade at $1.5585, having risen as far as $1.5680 in morning trade as European stocks initially traded with decent gains, before coming back to trade around flat on the day.
It had fallen to a near two-week low on Thursday at $1.5562 as weak Greek GDP and unemployment data reignited concerns over peripheral eurozone countries and sent investors seeking the safe-haven status of the greenback. Sterling rallies were hampered after the Bank of England cut its growth forecasts on Wednesday and predicted inflation would stay below target over the medium term, leaving the door open for more quantitative easing.
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