Sterling rose to a 20-month high against a weakened euro on Monday as political uncertainty in France and the Netherlands, combined with a grim economic outlook in the eurozone, prompted investors to flee the common currency. The euro fell 0.6 percent against the pound to 81.49 pence, its lowest since August 2010, as markets digested the first round of the French presidential election and the Dutch cabinet's resignation, which undermined confidence in the core of the euro zone.
Trade-weighted sterling climbed to 83.2 according to Bank of England data, the highest since August 2009, as cautious hopes that the British economy may avoid recession following Friday's upbeat UK retail sales data boosted the pound. Sterling retreated from a 5-1/2 month high against the dollar of $1.6155, however, as euro zone concerns prompted broad demand for the safe-haven greenback.
The pound was last down 0.3 percent on the day at $1.6080, although its technical outlook remained constructive after it closed above its 200-week moving average around $1.5940 last week for the first time since August 2008. "If you were to be bullish on sterling on any cross it would be against the euro. We believe the UK economy will show gradual improvement going forward and the market will recognise the UK is in a much better situation than the euro zone," said Sara Yates, currency strategist at Barclays Capital.