August 12, 2010 / 12:28 PM / in 10 years

Sterling falls to weakest in nearly 2 wks vs dollar

* Sterling falls to $1.5565 GBP=D4, weakest since July 30

* Pound tracks falls in euro/dollar

* But broad euro falls bring it to 6-week low vs sterling

LONDON, Aug 12 (Reuters) - Sterling turned lower against the dollar on Thursday, hitting its weakest in nearly two weeks as it tracked falls in the euro after weak euro zone data caused an earlier rally to fizzle out.

The euro fell as weak gross domestic product and unemployment data out of Greece, combined with a decline in euro zone industrial production, sparked concerns about the fragility of the euro zone’s recovery. [ID:nLDE67B0S3] [ID:nLDE67B0TH] [ID:nLDE67B0SA]

Broad dollar gains as investors shunned riskier currencies also weighed on sterling, though the pound hit a six-week high against a broadly weaker euro.

“Sterling took something of a breather against the dollar this morning as people were thinking the move had already gone a long way, but it was just a brief pause, and if euro/dollar is trading lower then the risk is that sterling will too,” said Tom Levinson, currency strategist at ING.

The dovish tone in Wednesday’s Bank of England inflation report was “at the margins a sterling negative”, he said, but added that the euro was bearing the brunt of the falls versus the dollar.

By 1219 GMT, sterling GBP=D4 was 0.3 percent lower at $1.5565, its weakest since July 30.

This followed a drop of around 1.4 percent the previous day which marked sterling’s biggest daily percentage loss since mid-May and took it well away from six-month highs reached on Friday just shy of $1.6.

Sterling’s falls may now pave the way towards its 200-day moving average, which currently stands around $1.5515.

The euro EURGBP=D4 fell 0.1 percent to 82.04 pence, its weakest since July 1.

Sentiment towards the pound was not helped by weaker demand at a sale of 12-year gilts, although analysts said the auction result was still decent. [ID:nLDE67B0W1]

DOVISH BOE

On Wednesday, sterling fell versus the dollar after the BoE cut its forecast for UK growth and left the door open to more quantitative easing, at the same time predicting inflation would fall well below target in two years’ time. [ID:nLDE67A15M]

More steps taken by the Federal Reserve to revive the U.S. economy also boosted safe-haven flows into the dollar and dented perceived riskier currencies as investors judged a U.S. slowdown would impact the global economy.

“The BoE’s downward revisions and the statement that it could do more QE did weigh on sterling, but it is the dollar that has dominated trade,” said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

“For the next day or two moves will be determined by market sentiment and equity direction.” (Reporting by Jessica Mortimer; Editing by Hugh Lawson)

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