Sterling hit its highest level against the euro in nearly four months on Monday as the single currency was stung by increasing concerns about sovereign debt problems in the eurozone. But despite slight gains against the euro, the pound slipped against the dollar after mortgage lender Halifax said UK house prices fell 1.6 percent year-on-year in the three months to December, its biggest fall since November 2009.
The euro was on the back foot after a senior eurozone source on Sunday said eurozone countries are cranking up pressure on Portugal to seek financial help from the European Union and the International Monetary Fund, to stem contagion risks from its debt problems. At the same time, some argued sterling would be supported on speculation that increasing UK inflation pressures may require the Bank of England to soon consider raising interest rates, despite the sluggish pace of the economic recovery. UK Prime Minister David Cameron weighed in on the inflation debate, saying on Sunday that he was concerned about a rise in prices.
The euro fell as low as 82.85 pence, its weakest since September 16. It pulled back to around 83.15 pence by late London trade, little changed on the day. Traders cited bids at 82.80 pence as helping the euro recover from its early slide. However, technical analysts said the euro's break last week below 83.34 pence - a two-month low hit in December which had provided some support - had opened the door to a fall to 80.67 pence, the 2010 trough hit in June.
The pound slipped as low as $1.5475 in the aftermath of the Halifax figures, before pulling back to $1.5530 by late London trade, down 0.2 percent on the day. Sterling's gain versus the euro helped to push the UK currency's trade-weighted index to 81.40, its highest since mid-December. It rose to the day's high versus the Swiss franc around 1.5100 francs, with traders citing stop-loss orders triggered around 1.5080 francs.
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