Sterling held gains against a broadly softer dollar on Thursday, supported by slight rise in the euro as risk appetite picked up following decent demand at a Spanish bond auction. The pound slipped against the euro, however, and remained vulnerable to concerns about the state of the UK economy after data showed the manufacturing sector contracted for a second successive month.
Analysts said developments in the eurozone debt crisis would continue to drive sterling trade, with all currencies likely to be sold against the US dollar if investors lose faith in policymakers' ability to solve the crisis. "The major driver today has been that the euro is stronger in response to the auction results out of Spain. Cable has been dragged up with it as the dollar slipped," said Michael Derks, chief strategist at FX Pro.
The pound rose 0.2 percent on the day to a session high of $1.5746. with traders citing demand from an Asian central bank, a long with Russian names as supporting the UK currency. It pared gains to trade around $1.5690 in late London trade, with traders citing demand to sell the pound ahead of a bank fixing.
Sterling remained within sight of $1.5780 hit on Wednesday, when joint central bank action to inject liquidity into the global financial system improved risk appetite and encouraged investors to sell the safe-haven dollar. The euro inched up 0.2 percent to 85.80 pence with strong support around the November 10 low of 84.86 pence.