September 6, 2010 / 3:35 PM / 10 years ago

Pound hits 6-week low vs euro, UK clearer sales seen

* Sterling hits 6-week low 83.90 pence per euro EURGBP=D4

* UK clearer reported to be a large sterling seller vs euro

* Weak UK data expected to keep sterling pressured (Adds quote, detail)

By Neal Armstrong

LONDON, Sept 6 (Reuters) - Sterling fell to a six-week low versus the euro on Monday, hit by market talk of heavy selling by a UK clearing bank and concerns over Britain’s fragile economic recovery.

Traders cited speculation that the order was related to the UK’s contribution to the European Union’s agricultural budget, while the pound also suffered from a hangover from weak data on the UK services and housing sectors last week.

“Because of last week’s disappointing data, there are concerns the services and housing sectors will continue to stay weak,” said Jeremy Stretch, currency strategist at CIBC.

“Also, today’s flows in general have been damaging for sterling, particularly given thin liquidity.”

U.S. markets were closed on Monday for Labor Day, resulting in less market volume than usual.

At 1502 GMT, the euro traded 0.1 percent higher on the day at 83.58 pence after rallying to 83.90, its highest level since late July and briefly poking above its 100-day moving average around 83.84 pence.

A close above that level is expected to open the door to more euro gains.

“The talk is of a large UK clearer having an axe to grind on EUR/GBP, and it’s about a billion euros,” a trader at a European bank in London said in early European trade.

The euro/sterling buy order took slapped sterling cross the board, pushing it 0.3 percent lower to $1.5400 GBP=D4.

Sterling had initially rallied to $1.5490 as riskier assets were boosted in the wake of a U.S. employment report on Friday that was less dire than expected.

But those gains were fleeting as the UK currency broke below its 200- and 55-day moving averages at $1.5418 and $1.5408, respectively.

Technical analysts said next key support was at $1.5322, the 38.2 percent retracement of the May to August rally.

SOFT UK DATA

A string of soft data releases last week reignited concerns over the fragility of Britain’s economic recovery, prompting expectations of pressure on sterling against most of its major crosses.

“Taking a look at sterling versus the Aussie dollar, the rand, the Swedish and Norwegian crowns, there is little to suggest other than a sell sterling rally mentality. I think it’s on borrowed time at these levels,” said a London-based spot trader.

Data on Friday showed British service sector activity grew at its slowest pace since April 2009, with a marked fall in hiring as employers worried about an economic slowdown and public spending cuts.

“Softer activity data, including last week’s weaker-than-expected PMIs, have again raised fears of a double-dip recession and strengthened the case for additional policy support,” Barclays analysts said in a note to clients.

This week’s data calendar is light until Wednesday, when UK industrial production data for July is due, expected to show an increase of 0.3 percent in July. (Additional reporting by Naomi Tajitsu; Editing by Hugh Lawson)

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