The pound hit a high this year against the euro and the dollar, rising above $1.63 for the first time since August as the UK currency continued to benefit from haven demand in Europe.
Sterling rose above €1.23 against the single currency, gaining 0.1 per cent to reach an annual high, with its strongest level against the euro since June 2010.
The pound’s strength surprised markets last week, as the demand for a relative haven in Europe outweighed figures showing the UK had slid back into recession after the first quarter. Sterling rose to annual highs against the single currency on three out of five trading days last week.
“With tensions in the euro-area unrelenting, it seems fair to conclude that the recent pattern in trade for euro/sterling is unlikely to change,” said Neil Mellor, foreign exchange analyst at BNY Mellon.
However, the pound pared gains against the dollar by midday trading in London to fall slightly to $1.6260, as the US currency started to claw back its losses against other major currencies.
The euro fell 0.1 per cent to $1.3220 while the Australian, New Zealand, Canadian dollars and the Swiss franc dipped against the US dollar as risk appetite waned after Standard & Poor’s, the rating agency, downgraded a string of Spanish banks.
The Australian dollar weakened ahead of a decision by the Reserve Bank of Australia on Tuesday on whether to cut interest rates, with market participants expecting a cut of at least 25 basis points to 4 per cent.
The Aussie dipped 0.3 per cent to $1.0428. The currency had reached a one-month high against the dollar last week, after gaining strength as markets decided the prospect of a rate cut had been fully priced in.
“A decision to ease by just 25 basis points could see some further relief gains in the currency,” noted analysts at Credit Suisse.
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