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Sterling hovered near a two-week high against the euro on Monday, as investors expected the ECB would have to ease policy if leaders failed to make significant progress in tackling the euro debt crisis at a summit this week. But gains were limited on speculation of more easing too in the UK.
The safe-haven dollar along with the Japanese yen advanced as investors across asset classes cut exposure to riskier currencies and assets on worries about slowing global growth and the festering euro crisis. Peripheral euro zone bond yields are at elevated levels, piling pressure on the European Central Bank to intervene and bring down borrowing costs. European leaders will meet later this week, after the leaders of Germany, France, Italy and Spain agreed on a 130 billion euro package to revive growth.
The ECB's decision to ease collateral rules at the end of last week triggered some speculation the central bank may announce a fresh cash injection programme, similar to the ones it conducted in December and February. Those long term refinancing operations have driven the euro lower.
"The risks facing the euro are greater than sterling. So I think sterling may outperform the euro, but it may underperfom the dollar," Jane Foley, senior currency strategist at Rabobank, said. The euro was down 0.4 percent against sterling at 80.27 pence, not far from this month's low of 80.115 pence struck on June 12. Further support for the euro was at around 79.895 pence, the low struck on May 31. Against the dollar, sterling was down 0.17 percent at $1.5565. Apart from the dollar's broad gains due to safe-haven inflows, sterling was also hurt by talk of more quantitative easing by the Bank of England.

Copyright Reuters, 2012

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