* Sterling hovers near 16-mth high vs struggling euro
* Cable slightly lower, tracks weakness in euro/dollar
* Analysts: Cable fall to $1.50 possible in coming months
LONDON, Jan 10 Sterling hovered near a
16-month high versus the euro on Tuesday as the absence of a
major breakthrough on the euro zone debt crisis in Franco-German
talks the previous day kept investors negative towards the
Despite being supported against the euro, the pound was on
the backfoot against the dollar, tracking a slight move lower in
the euro as investors continue to gravitate towards the U.S.
currency, the world's most liquid, during times of uncertainty.
After talks on Monday between Germany and France failed to
produce an immediate solution to contain the effects of the
region's debt problems, analysts saw further selling risks to
the euro, which would continue to drive movements in the pound.
"Sterling is following a broader move in euro/dollar, so
euro/sterling has fallen like a stone, and Cable is falling as
well," said Peter Kinsella, currency strategist at Commerzbank.
"We still see more downside in euro/sterling, and it will
probably be the same story in Cable," he said, adding that a
fall in Cable to around $1.50 was possible in the coming months.
In London trade, the euro slipped 0.1 percent on
the day to a session low of 82.49 pence, hovering near 82.22
pence hit on Monday, its weakest since September 2010.
Sterling slipped slightly on the day to a session
low of $1.5447, but the pound avoided a further slide as its
55-hourly moving average at that level provided technical
support on an intraday basis.
In the longer term, however, technical analysts believe any
gains in the pound will be limited by technical resistance
around $1.5700, its 55-moving day average, and around $1.5750,
where a downward trendline drawn from highs hit in August and
Market participants said intermittant corporate demand for
euro/sterling was limiting a further downside in the pair.
Traders added they had seen bids for euro/dollar and
euro/sterling since the start of the week, following a quiet
first week of 2012.
"Cable's rally off the lows at the moment seem to be
tempered by exporter demand for (cross/sterling) on any dips,"
said a trader in London, while adding that the pound was
supported by bids suspected around $1.5420/40.
Its upside was capped by offers at $1.5510/25, he added.
The main event of the week for sterling investors is likely
to be the BoE rate decision on Thursday. Policymakers are
expected to keep rates on hold at 0.5 percent and maintain the
quantitative easing target at 275 billion pounds.
Some analysts see the possibility that the UK central bank
may raise its asset-buying programme in the coming months if the
economy continues to struggle.
Still, market participants believe the pound will be
supported against the euro as investors flock to UK assets,
which are considered a safer alternative to euro zone assets
given that Britain is seen maintaining its AAA credit rating.
Gilt yields have hovered around record lows as a result,
even as the UK economy hobbles towards recovery, and risks the
chance of falling into recession this year.
Analysts say the recent outperformance of the UK gilt market
was more a result of concerns about the euro zone than
confidence in UK economic fundamentals.
Data released Tuesday on UK housing showed prices fell at a
marginally slower pace in the three months to December, while
respondents expected prices to continue falling.
Other data showed a jump in UK retail sales growth in
December, but retailers expect another tough year in 2012.
(Reporting by Naomi Tajitsu; editing by Anna Willard)