Sterling falls versus dollar on UK worries, Fitch warning

LONDON Wed Jan 16, 2013 9:30am GMT

A generic picture of a some British sterling money in coins and bank notes. BANKG REUTERS/Catherine Benson CRB

A generic picture of a some British sterling money in coins and bank notes. BANKG

Credit: Reuters/Catherine Benson CRB

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LONDON (Reuters) - Sterling fell against the dollar on Wednesday, hurt by UK economic worries and as Fitch rating agency warned about the UK's credit rating, though it recovered from a 9-1/2 month low against the euro.

The pound was down 0.3 percent at $1.6013, having fallen to $1.6003, its lowest in a week.

Traders said it could extend losses if it breaks below reported stop loss orders at $1.6000 and targets last week's low of $1.5992, which would mark its lowest since late November.

A firm break below $1.60 could see the pound target the mid-November low of $1.5828.

Fitch warned late on Tuesday in an interview with Reuters Insider television that "the risks are clearly increasing for the UK", and that it could downgrade the country if the March budget shows debt levels continuing to rise.

Concerns about the UK economy increased on news this week that UK music and DVD retailer HMV went into administration while analysts said investors could be wary before UK retail sales figures on Friday.

"I wouldn't be surprised to see sterling come back lower before the UK data," said Chris Redfern, broker at Moneycorp, adding the first estimate of fourth quarter UK gross domestic product due next week would also be key.

He expected the pound to stay roughly in its recent $1.60-$1.63 range, although very weak data could push it into new ranges.

However, the pound stayed comfortably above a low hit against the euro earlier this week, helped after Jean-Claude Juncker, the chairman of the euro zone finance ministers, said the euro was "dangerously high".

The euro edged up 0.1 percent to 82.85 pence but below Monday's peak of 83.26 pence, its highest level since early April 2012.

The euro stalled when it failed to break above 83.33 pence, equivalent to 1.20 euros per pound and a key level for UK companies looking to hedge their foreign exchange exposure.

Analysts at Lloyds said they expected the euro to see good chart support from 82.60 pence down to 82.30.

"There is nothing of note out of the UK today, and euro/sterling consequently seems likely to follow moves in euro/dollar, though sterling/dollar may trade with a downside bias in response to the Fitch warnings on the AAA rating and the HMV bankruptcy," they said in a note to clients.

(Reporting by Jessica Mortimer/editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)

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