July 1, 2011 / 11:55 AM / 9 years ago

Sterling hits 15-mth low vs euro, dented by weak PMI

* Sterling dented as UK manufacturing PMI falls to 21-mth low

* Euro hits 15-month high of 90.84 pence; TWI stg at 15-mth low

* Pound falls below 200-day moving average vs dollar

By Jessica Mortimer

LONDON, July 1 (Reuters) - Sterling fell to a 15-month low against the euro on Friday after a weak UK manufacturing survey backed the view that the Bank of England is likely to keep interest rates at record lows well into next year.

The euro rose to 90.84 pence, its strongest since mid-March 2010 as it established a firmer foothold above 90 pence. More gains would see it target the March 1, 2010 high of 91.50 pence then the late October 2009 high of 92.40 pence.

Analysts said sterling will be particularly vulnerable to soft data after recent BoE minutes and policymaker comments showed some Monetary Policy Committee members believe fresh quantitative easing may be needed if the economy worsens.

“The combination of weak economic data and some signs of moderating price pressures arguably may open the door for further easing,” said Lee Hardman, currency strategist at BTM-UFJ.

“The euro could rise to the mid-90s if the QE story goes further,” he said, adding that the pound was weakening because the BoE was the only central bank “even remotely” considering further stimulus.

The purchasing managers’ index on UK manufacturing sank to a 21-month low of 51.3 in June from May’s downwardly revised 52.0, worse than expectations for 52.1 and reinforcing concerns about a faltering UK economy.

The pound’s falls against the euro, which was last up 0.2 percent at 90.54 pence, dragged sterling’s trade-weighted index to a 15-month low of 77.5.

Against the dollar, sterling was down 0.3 percent at $1.5998 , dropping below its 200-day moving average — seen as a key technical barometer — around $1.6040.

A weekly close below this level would be seen as a bearish signal that could prompt further falls, with the first target the recent five-month low of $1.5912.

Investors have steadily pared back the expected timing of a UK rate hike, with many now forecasting the first quarter percentage point increase will not come until May 2012. At the start of the year, investors were pricing in at least three rate hikes by the Bank of England in 2011 .

By contrast, the euro is supported by expectations that euro zone interest rates will rise next week.

“It now looks as if it will take some move to undermine the upward momentum of the past few days but a move below 90.00 could well be the first evidence of a correction lower,” said Michael Hewson, analyst at CMC Markets.

“It would need a sustained break back below the 89.40 area to shift the focus back towards 88.50.”

Reporting by Jessica Mortimer; Editing by Susan Fenton

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