LONDON (Reuters) - Sterling jumped against a broadly weaker euro on Friday, with the single currency facing pressure as tumbling euro zone inflation left room for aggressive European Central Bank rate cuts next week.
Provisional figures showed euro area annual inflation plunged to 2.1 percent in November from 3.2 percent in October.
But sterling was on the backfoot against the dollar along with other major currencies, with dealers citing a large amount of end-month dollar buying interest centred around the 4 p.m. London currency fixing.
A slight easing in extreme risk aversion this week has allowed sterling some breathing space from investor deleveraging, leaving the pound on track for its biggest weekly percentage gain since late 2006.
But the pound is still down close to 23 percent on the year to date as policymakers and the British government scramble to stave off a deep recession.
"The market is relatively thin hence we see much sharper moves than normal. Because it is the end of the month, we're seeing some dollar positive transactions going through," said Naeem Wahid, currency strategist at Bank of Scotland Treasury Services.
"Over the last three months we have had a cable (sterling/dollar) downtrend and that downtrend is still in place. Risk aversion, capital unwind and deleveraging, that story is still going on," he added.
By 4:05 p.m., the euro had fallen 1.1 percent on the day to 82.74 pence, while sterling slipped almost half a percent to $1.5320, while the euro fell to 82.86 pence.
Earlier the market digested data showing British retail sales in November fell to record low levels reached in August, as a falling housing market weighed on consumer spending.
In another sign of the negative outlook for the real economy, British consumer confidence remained near record lows in November, a poll by GfK NOP showed.
Next week the Bank of England has its monthy rate setting meeting, with economists polled by Reuters on Thursday widely expecting it to follow November's shocking 150 basis point interest rate cut with at least a 50 basis point chop.
(Reporting by Harpreet Bhal; Editing by Ron Askew)
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Last updated: 28 November 2008, 17:03
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