Sterling stayed firm versus a struggling euro on Monday, as perceived sovereign risk in the eurozone weighed on sentiment towards the single European currency. Worries over Greece's debts outweighed concerns about the UK economy, as a lack of clarity over a support package for Athens and persistent investor anxiety regarding the indebtedness of other peripheral euro zone countries kept the single European currency under pressure.
"We expect sovereign risk in the eurozone to continue to weigh on euro/sterling and target a move towards 85.50 pence in the medium-term", said Lauren Rosborough, currency strategist at Westpac. At 1555 GMT sterling was all but flat versus the euro, which traded at 86.81, not far from last week's low of 86.58. Against the US dollar, the pound was down 0.1 percent at $1.5650 after reported custodial demand had pushed the rate briefly above $1.5700.
Trade was said to have been light on Monday as Presidents' Day holiday in the US reduced liquidity which had already been impacted by lunar new year holidays in much of Asia. Sterling remained close to its recent lows of $1.5535 versus the greenback, which were hit last week as the US unit gained safe-haven status on reduced appetite for risk.
Sterling had come under selling pressure after last Wednesday's dovish Bank of England report, in which the UK inflation outlook was revised down, increasing the possibility of further quantitative easing to try to stimulate the economy. This week's focus will be on BoE minutes, due on Wednesday. after Governor Mervyn King said last week it was far too soon to say quantitative easing was finished.
"The MPC minutes may show that a significant minority voted for an extension of QE, perhaps including Governor King," said analysts at Barclays in a note. January inflation data is scheduled for release on Tuesday, with CPI expected to fall 0.1 percent month-on-month, according to a Reuters poll, and year-on-year inflation seen at 3.5 percent.