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* Sterling drops after Fisher flags chance of more QE
* Near-term support around $1.6078 for Cable
* Euro/sterling off highs after German ZEW survey
By Anirban Nag
LONDON, June 21 Sterling fell sharply against the dollar and the euro on Tuesday after a key Bank of England policymaker struck a more dovish tone, prompting some short-term investors to reverse bullish bets built up in the past few days.
Paul Fisher flagged the chances of more quantitative easing in the UK after public finance data painted a dismal picture of the UK's fiscal position. Fisher said Britain's economic recovery remained fragile and more monetary stimulus could be required if deflation risks mount. [ID:nWEB6360].
His comments persuaded some Russian investors and speculators to sell the pound, traders said.
Sterling was last down 0.2 percent at $1.6170 GBP=D4, dropping from around $1.6217 before Fisher's comments with stops below $1.62 triggered by the move lower. Near-term support was around its June 16 low of $1.6078.
The euro rose to a session high of 88.70 pence after Fisher's comments EURGBP=D4, but gave up some of those gains after Germany's ZEW economic sentiment survey raised concerns about the euro zone's largest economy. The common currency was at 88.53 pence, up 0.3 percent on the day.
"Fisher's comments have led to a sell-off and it is fair to say that he was more dovish than BOE Governor (Mervyn) King," said Christian Lawrence, FX strategist at RBC Capital Markets.
"We still maintain that the BOE will raise rates in November, but the risks of that happening later are increasing."
Investors are not pricing in a full quarter percentage point rate hike until July next year. BOEWATCH. They have steadily pared back rate hike expectations in the past few months.
UK data has been on the softer side as the country enters a long period of drastic fiscal tightening. Consumers have turned cautious while manufacturing and services growth have disappointed, raising questions about how sustainable the recovery is.
Data on Tuesday showed Britain ran up a record budget deficit in the first two months of the fiscal year and analysts said slowing economic growth would pose a challenge to the government as it tries to slash borrowings. [ID:nL3E7HL16S].
UK CBI industrial trends survey showed British factory orders were stronger than expected in June, but it did little to lift the currency.
Analysts say the downside risks to growth are building and outweigh near-term risks to inflation and may erode sterling's rate advantage some more in coming days.
"Investors will be also looking for indications from the June BoE minutes that the prospect for early hikes has weakened further now that Andrew Sentance is no longer a member of the MPC," said Valentin Marinov, currency strategist at Citi.
"Sterling specific drivers could add to the headwinds for GBP in coming days."
The BoE's Monetary Policy Committee meeting minutes for June will be released on Wednesday. Investors will scrutinise it for clues on how new policymaker Ben Broadbent voted in his first meeting since replacing arch-hawk Sentence. [ID:nMPCVOTE]
(Reporting by Anirban Nag; editing by John Stonestreet)
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