Sterling hit a two-month low against the euro on Tuesday as the single currency rose on robust investor demand for Irish and Greek government paper, which eased concerns about eurozone peripheral sovereign debt. While staying under selling pressure against a broadly strong euro, the pound managed to claw its way back from earlier losses versus the dollar as it tracked the single European currency's move higher against the greenback.
The euro extended gains after Ireland sold 1.5 billion euros in an auction of 2014 and 2018 bonds, at the top of its target range, with yields well below those seen for the bonds in the secondary market. The euro rose to a two-month high of 84.70 pence, up 0.7 percent on the day after stops were triggered initially above 84.16 pence and then 84.50 pence, traders said.
By 1505 GMT, it traded at 84.40 pence, having closed just above the psychologically key 84.00 pence on Monday. Technical support also came in at 83.84 pence, the 23.6 Fibonacci retracement of the euro's October 2009-June 2010 move down. The pound sagged briefly after data showed UK public sector net borrowing at an August record high as interest payments on gilts shot up because of higher inflation. Sterling hit a low of $1.5503 against the dollar in early London trade, before pulling back to $1.5550, little changed on the day. Broad weakness pushed trade-weighted sterling to a two-month low of 80.8.