Investors flocked to buy the UK currency on Tuesday, sending it to an 11-month high against the euro, believing British assets to be a safe haven from the eurozone's festering debt crisis. Sterling also climbed versus the dollar after a sharp fall in Spanish short-term borrowing costs and better US and German economic data reduced demand for the safe haven greenback.
Trade-weighted sterling, which tracks the pound's value against the currencies of the UK's main trading partners, rose to 81.5, its highest since early March. "Sterling has got some non-euro safe haven status and is benefiting from lazy dollar longs being squeezed by a slightly more benign global risk outlook," said Kit Juckes, currency strategist at Societe Generale.
The euro fell 0.3 percent to 83.55 pence, its lowest level since mid-January. Traders said the pound's gains versus the euro mainly reflected continuing worries following a European Union summit earlier this month which is seen as having failed to come up with a firm, immediate plan to solve the debt crisis.
"There seems to be sentiment in favour of (the pound) at the moment," said a trader in London. "The post-EU summit feeling is that the UK is best out of it." Anticipation among investors that the UK will hold onto its prized AAA credit rating while countries including France and Germany are seen to be at risk of losing theirs is an important factor behind sterling's relative safety at the moment.
Sterling also rose around 1.2 percent against the dollar to a session high of $1.5694. The pound's rally accelerated after it broke above reported stop-loss orders around $1.5600, while it sailed through offers around $1.5620-30. A break through hefty stops around $1.31 in euro/dollar following better-than-expected US housing data added momentum to the broad dollar sell-off.