March 22, 2010 / 4:31 PM / 9 years ago

Sterling recoups loss as euro falters; budget eyed

* Euro below 90 pence EURGBP=D4, hit by Greek concerns

* Pound recovers from near-two week low vs dollar of $1.4933

* UK budget eyed; Darling says no pre-election giveaways

* BoE’s King: economy to feel sub-par despite recovery

LONDON, March 22 (Reuters) - Sterling rebounded on a broadly weaker euro, but the pound remained pressured by concerns about the UK outlook before this week’s budget and a general election that looks set to be closely fought.

Investors were eyeing Wednesday’s budget to be delivered by UK finance minister Alistair Darling, who said on Sunday there would be no pre-election giveaways, promising instead a “sensible”, workmanlike, economic plan to support growth and cut borrowing. [ID:nLDE62K05Y]

Analysts said expectations for an undershoot in public borrowing would be welcome, but not enough to reverse worries over debt, growth and whether the next government would be able to tackle the budget deficit, expected to hit 12 percent of gross domestic product this year.

“Such an improvement would be marginal in a macroeconomic context and the broad picture remains one of record levels of borrowing, a rising level of public debt and a lingering question mark over the UK’s triple-A sovereign rating,” said Adarsh Sinha, currency analyst at Barclays Capital.

Traders said speculation of a new bank levy also weighed on the pound.

But negative sentiment focused on the euro due to continued wrangling on financial aid to debt-laden Greece, taking the immediate focus off the UK currency, traders said.

By 1612 GMT, the euro fell 0.3 percent at 89.76 pence, slipping from the day’s high of 90.45 pence EURGBP=D4.

The cost of insuring Greek debt against default rose on Monday as Greece came under renewed pressure after European leaders sent conflicting signals over aid to the country. [ID:nLDE62L0HG] Traders remained cautious ahead of an EU summit later this week.

Against the dollar, sterling was 0.4 percent higher near the day's high of $1.5089 GBP=D4. Earlier, it fell to a near two-week low of $1.4933 in holiday-thinned Asian dealing.

Data on Friday showed net short sterling positions stood at 63,987 contracts for the week ended March 16, up marginally from the prior week. The recent peak on March 2 of 67,549 short contracts was the highest on record. [ID:nN19170101]

Technical analysts also said the outlook for the pound remained negative.

“Sterling/dollar starts the week looking very vulnerable, focus is on the $1.4823/1.4780 one-year uptrend and recent low,” analysts at Commerzbank said in a note.

Political uncertainty has hurt sterling — down 9 percent against the dollar since its December highs. Latest opinion polls over the weekend showed no party was on course to win an overall majority in an election expected on May 6. [ID:nLDE62J0DS]

Traders will keep a close eye on UK inflation figures on Tuesday, with retail sales data scheduled for release on Thursday.

Bank of England Governor Mervyn King said the level of economic activity was likely to remain weak for some time even as growth rebounded. [ID:nLAC005669] (Reporting by Tamawa Desai and Neal Armstrong; editing by Stephen Nisbet)

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