Sterling fell to a near two-month low against the euro and slipped against the dollar on Thursday as some nervous investors trimmed bets on the currency before growth figures for the third quarter due on Friday. Sterling was also weighed down by data from the Confederation of British Industry that showed factory orders unexpectedly weaken this month, suggesting an economic rebound could be pausing for breath.
The euro rose 0.4 percent to 85.55 pence, its highest level since late August with the single currency setting aside weaker-than-expected PMI readings to rise for a fifth straight day. Against the dollar, sterling was down 0.1 percent at $1.6145, pulling further away from a three-week high of $1.6258 hit in the previous session.
Preliminary gross domestic product (GDP) data from Britain is due on Friday and is expected to show the economy grew by 0.8 percent in the third quarter, compared with the previous three months. With hedge funds and short-term momentum traders building bullish positions on expectations of a robust data, there was a risk that a disappointing number or a reading that is in line with expectations could see a pull back in sterling.
But any dips towards $1.60 would be bought into by reserve managers for a move higher, possibly targeting this year's high of $1.6380 in the next few months. That is partly because the British economy was still on track for a sustained recovery, in contrast to the US where the economy seems to losing momentum after a 16-day government shutdown and the euro zone which has just emerged from a recession. "There has been a lot of good news recently in sterling and that dynamic is fading, not to become negative but to become more neutral," said Adam Cole, global head of FX strategy at RBC Capital.