Forexpros – The euro erased losses against the pound on Tuesday, after a report showed that German economic sentiment improved unexpectedly, but the single currency remained vulnerable as Italian borrowing costs rose.
EUR/GBP pulled back from 0.8442, the pair’s lowest since February 23, to hit 0.8468 during European morning trade, edging up 0.08%.
The pair was likely to find support at 0.8442, the session low and resistance at 0.8503, the high of March 2.
The ZEW Centre for Economic Research said that its index of German economic sentiment rose for the first time in ten months in December, edging up to minus 53.8 from last month’s three-year low of minus 55.2.
Analysts had expected the index to decline to minus 55.8 in December.
The assessment of the current economic situation in Germany remained in positive territory but deteriorated for the fifth consecutive month.
But the euro remained under pressure as the yield on Italian 10-year government bonds climbed above the critical 7% threshold, amid concerns over the risk of sovereign rating downgrades across the euro zone, after last week’s European Union summit failed to produce concrete plans to resolve the region’s debt crisis.
In the U.K., official data showed that consumer prices rose 0.2% in November, taking the annual inflation rate to 4.8%, in line with expectations.
Meanwhile, Bank of England Chief Economist Spencer Dale said earlier that inflation was likely to fall to just above 3% by the end of the first quarter, adding that the pace of inflation after that would determine the course of monetary policy.
The euro was steady against the U.S. dollar, with EUR/USD inching up 0.03% to hit 1.3191.
Later in the day, the Federal Reserve was to announce its federal funds rate, while the U.S. was also to release official data on retail sales.
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