Pound stung by weak confidence

 

Sterling fell on Monday, approaching a one-month low against the euro after figures showing an unexpected fall in UK consumer confidence underlined ongoing weakness in Britain's economy.

Investors also shunned the pound as European shares fell due to concerns about Dubai's debt problems after the region last week called for a delay in repaying billions of dollars in debt.

Some in the market see Dubai's woes as a negative factor for sterling, given the potential damage weakness in the UAE may have on Britain's financial sector.

A monthly GfK survey showed its UK consumer confidence index fell to -17 in November from -13 in October, below a Reuters forecast for a -11 reading and marking the first fall since January.

The pound struggled, fighting to hold gains against the dollar after the UK currency took a hit late last week after Dubai's announcement it needed more time to repay debts shook confidence in sterling, given UK banks have large investments in Dubai.

Analysts said this view would continue to keep sterling under selling pressure even as a pledge by the UAE central bank to provide support to the region's bank prompted some in the market to return to other riskier currencies.

"Following the significant deterioration in the pound sentiment of late, we would not expect a meaningful recovery in the GBP against the USD and especially the EUR even if global risk appetite shows further signs of recovery in coming days" Commerzbank analysts said in a note.

At 8:47 a.m., the euro traded 0.4 percent higher at 91.10 pence, having climbed as high as 91.30 pence in early London trade. The euro hit a one-month high of 91.35 pence on Friday.

Sterling traded at $1.6502, slightly higher on the day but retreating from the day's high of $1.6593. On Friday, the pound fell as low as $1.6252, its weakest in more than three weeks after the Dubai news. 

Traders said UK corporate names were selling sterling against the dollar in early London trade, while talk of month-end demand for euros from European central banks was helping to boost the euro against sterling.

Market participants showed little reaction to data on Monday which showed a modest rise in UK house prices in November.

Investors awaited figures for UK consumer credit, money supply and mortgage approvals due later in the day.