Sterling edged higher against the dollar on Thursday as investors interpreted a Spanish credit downgrade as a sign Madrid is more likely to ask for financial aid, making them more willing to buy currencies perceived to be riskier. The broader recovery in risk appetite meant that sterling slid against the euro, however. The single currency had earlier come under pressure in a knee-jerk reaction to ratings agency Standard & Poor's cutting Spain's rating to BBB-minus, just above junk status.
Pound rises against dollar: "The euro is holding up relatively well as now people are taking it (the downgrade) as a positive because Spain might be closer to asking for a bailout. It's perverse but the logic is they need to take a step back to go forwards," said Richard Wiltshire, chief FX broker at ETX Capital. Sterling rose 0.2 percent against the dollar to $1.6029, inching further away from a one-month low of $1.5975 hit on Tuesday, its weakest since September 10.
The euro climbed 0.3 percent against the pound to 80.66 pence, but remained below a peak of 81.00 pence reached on Monday, its strongest in nearly four weeks. It faced strong chart resistance at the mid-September peak of 81.14 pence and the 200-day moving average at 81.18 pence. Further losses would see the pound target chart support at $1.5960, a low reached on September 10 and the 38.2 percent retracement of sterling's rally from its low in July to its high of $1.6310 on September 21.