Sterling hit a near three-week high against the euro on Monday, with the shared currency coming under pressure as investors fretted over the Italian prime minister's decision to resign. Italian Prime Minister Mario Monti said on Saturday he would resign after the 2013 budget is approved, increasing political uncertainty in the heavily indebted country and dragging on the euro.
The euro dropped 0.2 percent against the pound to 80.37 pence. It hit a low of 80.35 pence in thin Asian trade, its lowest level since November 21, according to Reuters data. Further weakness could see the euro test the November 8 low of 79.605 pence. "The resignation offer of PM Monti in Italy is likely to weigh upon the euro going forward both against the pound and against the dollar," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.
"The risk of euro/sterling breaking below 80 pence has increased following the announcement, it could lead to a pick-up in safe-haven flows into the UK as we move into next year." Concerns about the euro zone has helped support the pound this year as some investors seeking to cut exposure to the debt crisis bought sterling assets, viewing the UK as a relative safe haven.
Against the dollar, sterling gained 0.3 percent on the day to $1.6086, helped by a recovery in the euro against the dollar later in the session. Market players said sterling was boosted by demand from longer-term investors, though gains could be checked by reported sell offers between $1.6080 and $1.61. The pound has fallen against the dollar in recent sessions, with the greenback lifted by faster-than-expected US employment growth that prompted bets the Federal Reserve could opt for a smaller stimulus programme when it meets this week.
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