Forexpros – The euro turned higher against the pound on Wednesday, following remarks by senior European Central Bank policymaker Ewald Nowotny, while dismal second quarter growth data weighed on the pound.
EUR/GBP pulled away from 0.7776, the session low, to hit 0.7827 during European morning trade, gaining 0.64%.
The pair was likely to find support at 0.7753, Monday’s low and a three-and-a-half year low and near-term resistance at 0.7853, the high of July 19.
The euro found support after Nowotny said that there were some arguments in favor of giving the euro zone’s bailout fund, the European Stability Mechanism, a banking license, which would increase its firepower to fight the debt crisis in the euro zone.
But the euro remained under pressure after the yield on Spanish 10-year government bonds spiked to a euro-era high 7.71% earlier, well above the 7% threshold widely considered unsustainable, fuelling concerns that a full-scale sovereign bailout is inevitable.
The pound weakened broadly after official data showed that the U.K. economy contracted the most since the first quarter of 2009 in the three months to June.
The Office for National Statistics said the U.K.’s gross domestic product contracted by 0.7% in the second quarter, far more than the 0.2% contraction economists had forecast, extending Britain’s recession into a third quarter.
The U.K.’s economy shrank by 0.3% in the first three months of 2012.
Year-over-year, U.K. economic growth contracted 0.8% in the second quarter, disappointing expectations for a decline of 0.3%.
The report said that the service sector shrank by 0.1% during the quarter, while industrial output declined by 1.3%. Meanwhile, construction sector output dropped by 5.2%.
The ONS said that the extra public holiday for the Diamond Jubilee and poor weather weighed on economic activity.
The euro came off two-year lows against the U.S. dollar, with EUR/USD up 0.47% to 1.2118 and pulled back from a 12-year trough against the yen, with EUR/JPY up 0.58% to 94.82.
Later in the day, the U.S. was to publish official data on new home sales, as well as a report on crude oil stockpiles.
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