Sterling fell to a five-and-a-half month low against the euro on Wednesday as investors bet UK interest rates would lag those in the eurozone with a mixed British jobs report offering little support. Strategists said the euro was now on track to test its October 2010 high of 89.415 pence. If it breaks that level, it could be poised for a rise to its March 2010 high of 91.50 pence. It was last trading flat at 89.02 pence, having risen to as high as 89.24 pence earlier.
Expectations for a near-term Bank of England rate hike have already been slashed significantly following a surprise fall in UK inflation and dismal retail sales data on Tuesday. UK labour market data on Wednesday showed that the jobless rate fell to 7.8 percent in the three months to February, below forecasts for a reading of 8.0 percent. The pound has suffered recently against the euro as investors increasingly see the BoE as a laggard in tightening monetary policy behind the European Central Bank, which raised rates by 25 basis points last Thursday.
Sterling was 0.1 percent higher on the day against the dollar at $1.6264, with sell-stops cited at $1.6235 and below. It has retreated from a 15-month high of $1.6430 hit last week, weighed down by its losses against the buoyant euro. Further sterling losses, however, could be limited in the short term due to a bearish outlook for the greenback.