Sterling rose on Thursday, hitting a three-week high against the euro helped by news Britain's economy contracted less than expected in the second quarter and as worries grew about Spain's debt and economic problems. The euro fell 0.5 percent to 79.23 pence, its weakest since September 6 and nearing the 55-day moving average at 79.09 pence and the September 5 low of 78.87 pence. It was last down 0.3 percent at 79.37 pence.
The euro was knocked by uncertainty over Spain, its budget - which is due on Thursday - and when the government may seek a bailout, a necessary precursor to the European Central Bank intervening to lower its borrowing costs. Sterling was up 0.1 percent against the dollar at $1.6188, off a two-week low of $1.6137 reached on Wednesday. However, it stayed below last week's 13-month peak of $1.6310. Traders said the pound was also lifted by talk of farm subsidy payments expected later in the week, which the European Union makes to Britain once a year. The subsidy could see around 3 billion euros ($3.85 billion) of flows into Britain.
"There is bad news for the euro and bad news for the dollar and people are left casting about for alternatives, so sterling is doing OK relatively," said Alex Lawson, senior dealer at Moneycorp. Contrasting with the UK data, figures showed US growth was much weaker than previously estimated in the second quarter. The final second quarter GDP estimate showed the economy shrank 0.4 percent, compared with expectations for an unchanged reading of -0.5 percent, while recent data has suggested the UK has recovered in the third quarter. Bank of England policymaker Paul Fisher forecast "a very strong gross domestic product number" in the third quarter, in an interview with the Sun newspaper.
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