Sterling hits new peak versus euro

The UK pound rose to its highest in 3-1/2 years against the euro on Wednesday after reporting of comments from German Chancellor Angela Merkel on the euro project spooked investors and encouraged them to sell the euro for safer alternatives.
Sterling erased falls suffered earlier in the day after Bank of England minutes showed policymakers discussed a possible interest rate cut and additional asset buying at their meeting earlier this month.
The euro fell 0.2 percent to hit a low of 78.30 pence, the fourth day running it has marked its lowest level since late 2008. But it stopped shy of a reported options barrier at 78.25 pence, traders said. Sterling remained lower against the dollar, trading down 0.1 percent at $1.5626. Traders reported earlier central bank demand for the pound which helped keep it above chart support around $1.5680-85.
In the wake of the BoE minutes, the euro had risen as high as 78.69 pence before pulling back following reports of a Merkel interview in which she stressed her commitment to Europe but said the European project was "not yet shaped so that we can be sure that everything will turn out well". "The market doesn't need a strong reason to sell the euro and this is just a reminder of the euro's fragility," said Chris Turner, head of currency strategy at ING.
The BoE minutes said although policymakers rejected cutting interest rates from the current record low 0.5 percent, new credit measures might alter their assessment in the coming months.
ING's Turner said a BoE rate cut would come as a surprise to the market and could help stem the euro's falls against the UK currency, probably pushing it back above 80 pence. For now, most expect sterling will continue to rise against the euro because the euro zone's deepening debt problems is encouraging investors to search for perceived safer alternatives.
"The driver of sterling is what happens to the euro. Movements in the euro have a disproportionate effect," said Gavin Friend, currency strategist at National Australia Bank. The BoE's Monetary Policy Committee voted 7-2 in favour of increasing asset purchases under its quantitative easing programme by 50 billion pounds, with two members opposing the rise, although they also debated a bigger 75 billion pound rise.