Sterling rises to four-week high against euro
STERLING rose to a four-week high versus the euro and a six-month high against a broadly weaker dollar yesterday, lifted by buoyant risk appetite as strong corporate earnings benefited equity markets.
Rising share prices lifted investors' appetite for taking on risk, helping riskier currencies, but analysts said evidence of a healthy banking sector helped the pound in particular, given the financial sector's hefty contribution within the UK economy.
"Sterling is in the process of a long-term re-rating.
"The UK had been priced for disaster given the troubles in the financial sector, but now all the reasons for hating the pound have gone," said Kit Juckes, strategist at Societe Generale.
"On valuation grounds sterling looks cheap relative to most other currencies and there are reports that some people are short of sterling and are still being squeezed".
Sterling's recent gains against the euro are set to help Irish exporters sell goods into their main market.
Demand for exports in the manufacturing sector here gained for a ninth month in July following UK demand, a separate survey showed yesterday.
Also helping the pound was a survey showing growth in Britain's manufacturing sector eased less than expected in July, with employment and new orders remaining strong.
The euro fell 0.5pc against the pound yesterday to hit a four-week low of 82.64p.
Technical analysts said a "head and shoulders" formation has been building in euro/sterling over the last couple of weeks, with a horizontal neckline at 83.15 pence. If confirmed it could prompt a sizeable fall, they said.
Traders also cited talk of euro/sterling selling related to Royal Bank of Scotland's sale of hundreds of UK branches to Spain's Santander, which sources said could yield up to £1.8bn.
Sterling also benefited as the dollar came under pressure on concerns the US economy is losing steam after below-forecast growth data last week.
The latest data from the Commodity Futures Trading Commission showed speculators increased net short dollar positions and reduced bets against sterling in the latest week.