Sterling rose to a four-month high against a broadly weaker dollar on Tuesday on prospects of more US monetary easing and after a warning on US debt by Moody's Investors Service. Moody's said the United States could lose its triple-A debt rating if next year's budget talks do not result in a lower debt to GDP ratio. This added to selling pressure on the dollar which has been dented by anticipation that the US Federal Reserve will opt to inject more stimulus when it announces its latest policy decision on Thursday.
The pound rose 0.4 percent to a high of $1.6049, just shy of a reported options barrier at $1.6050, to mark its strongest level since May 15. "Cable (sterling/dollar) is being driven by the dollar and building expectations the Fed will announce more monetary easing," said Lee Hardman, currency economist at BTMU. The pound gained in tandem with the euro on expectations of a favourable German court ruling on a euro zone bailout fund due on Wednesday, while better UK economic data also helped.
But the pound dipped against a broadly firmer euro, which rose 0.25 percent to 79.98 pence, hovering close to a two-month peak of 80.11 pence reached on Monday. The euro has performed well since the European Central Bank unveiled a bold plan last week to lower borrowing costs of peripheral euro zone countries.
Earlier, Germany's constitutional court said it would not postpone its ruling on the legality of the euro zone's bailout fund, due on Wednesday, despite a last-minute legal challenge by a eurosceptic lawmaker. "There is good momentum for sterling," said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets.
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