Sterling traded close to two-month highs against a broadly weaker euro on Monday as investors worried European Central Bank buying of Spanish and Italian bonds would have only a limited positive impact on the eurozone's debt crisis. A lack of UK data or newsflow meant the pound's direction was mainly driven by risk sentiment, further dented when Standard and Poor's cut its US sovereign rating to AA-plus from AAA late on Friday, hitting stockmarkets and riskier assets.
The euro fell around 0.6 percent to 86.62 pence, bringing it close to a two-monthh low of 86.55 hit last week. Traders cited decent support at around its 200-day moving average at 86.65. Technical analysts said a daily close below the 200-day for the first time since February would be a key negative signal for the euro. Sterling pulled back from an early high of $1.6478 against the dollar in thin trade to sit with losses of around 0.5 percent on the day at $1.6308.
Traders said decent offers in the $1.6480-1.6500 region had helped to cap its rally. Resistance also resides at $1.6519 - the 76.4 percent retracement of sterling's fall from a high of $1.6747 on April 28 to a low of $1.5781 on July 12. Stop-loss orders were said to have been targeted at $1.6310 in late trade.