Sterling rose to its highest in two and a half months against a broadly weaker euro on Wednesday as a solid UK services sector survey eased UK recession fears and highlighted a contrast with a struggling euro zone economy. The euro came under selling pressure after yields jumped at a Spanish bond auction, intensifying concerns about Spain's high debt levels and as European Central Bank President Mario Draghi spoke of risks to the eurozone economy.
The pound slipped against a firmer dollar, however, after Federal Reserve minutes on Tuesday undermined expectations that it could pump yet more cash into the US economy to support growth. The euro fell around 0.6 percent to 82.62 pence, its lowest since mid-January. Further losses would target the January 11 low of 82.40 and then the 2012 trough of 82.22 pence.
"Euro/sterling has limited downside potential, but if it breaks below 82.22 pence that opens up a move towards 80.00," said Kathleen Brooks, research director at FOREX.com. However, the UK economic outlook remains fragile and analysts said the pound would be vulnerable if any weak data in the weeks to come reignited worries the Bank of England could opt for another bout of quantitative easing.
Sterling was helped by falls in the euro after the ECB's Draghi said the eurozone's economic outlook was subject to downside risks relating to the debt crisis and talk of an exit strategy from extraordinary liquidity measures was premature. Its gains against the euro lifted the pound's trade-weighted index to 82.0, matching a 13-month high hit earlier this week, BoE data showed.
Against the dollar, however, the pound lost 0.2 percent at $1.5877, slipping further away from Monday's peak of $1.6063, its highest since mid-November. The US dollar gained broadly after minutes from the US Federal Reserve's March meeting showed only two of the 10 policy-setting committee members saw the case for additional monetary stimulus in the light of an improving economy.
The pound hit a low for the day of $1.5833, below its 200-day moving average at $1.5849 and leaving it in sight of the 100-week moving average of $1.5804. It has struggled to maintain a move late last week above the 200-week average, currently just below $1.60.
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