Sterling hits lowest in over 11-1/2 yrs

Sterling fell on a trade weighted basis to its lowest in over 11-1/2 years on Friday, after a downward revsion to UK second quarter growth raised the chances of a technical recession.
UK gross domestic product was unchanged on the quarter in the three months to June, down from a preliminary estimate of 0.2 percent growth and below analysts' forecasts for a revision to 0.1 percent growth. This was the weakest performance since the recession of the early 1990s.
By 0911 GMT, sterling's trade weighted index had fallen to 90.60, its lowest since late 1996.
"Today's data increases the chance of a recession in the UK, so that's why sterling is under considerable pressure and that's why we think sterling will remain under pressure," Antje Praefcke, currency strategist at Commerzbank.
"Overall the outlook is bad for the pound because the economic and fundamental outlook is so bleak."
The dollar rose versus a basket of major currencies on Friday, recovering from a slide the previous session, as traders paused from profit-taking and awaited a speech by Federal Reserve Chairman Ben Bernanke.
Gains in the U.S. currency were slim as concerns about the U.S. financial sector weighed and as traders have reckoned that the dollar index's race to a near eight-month high earlier in the week may have come too quickly.
Still, analysts said the dollar would remain supported as investors have acknowledged that global economies were vulnerable to U.S. economic weakness which has long plagued the U.S. currency.
"We're in a period of consolidation. The market is squaring up a bit as it finds a new trading range," said Paul Mackel, director of currency strategy at HSBC Markets.
"We're still upbeat on the dollar, and we think that the big move we saw last week is very symptomatic of the currency being undervalued in the bigger picture."
Markets awaited a speech by Bernanke, who will talk about financial stability at an annual symposium in Jackson Hole, Wyoming, later in the day, for more clues into the U.S. central bank's view on the economy and its interest rate outook.
In the meantime, Friday sees a thin schedule of economic events and data during the European session, which analysts said offered a plum opportunity to square positions after wild market swings seen in past weeks.
The euro, slipped nearly 0.3 percent to $1.4865, edging towards $1.4628 hit earlier in the week according to Reuters data for the first time since February.
The value of the dollar against a basket of major trading currencies rose a third of a percent to 76.297, heading up towards 77.413 hit on Tuesday, its strongest since late December.
The U.S. currency rose 0.7 percent to 109.12 yen, recovering from a slide to 108.12 yen on Thursday and inching back towards an eight-month high of 110.66 yen touched a week ago.
OIL LIMITS GAINS
Market participants said that a 0.3 percent rise in U.S. crude oil prices CLc1 would keep a lid on dollar gains, as higher oil is seen adding to inflation risks and slowing manufacturing in the world's largest oil consumer.
In addition, persistent doubts about the health of Fannie Mae, Freddie Mac and investment bank Lehman Brothers have reminded investors about the housing-related troubles still plaguing the United States. But those financial sector fears were not having the same repercussions in financial markets as they did earlier in the year, traders said.
The dollar has soared this month as investors dumped positions they had made betting the global economy would withstand the U.S. downturn and the credit crisis by selling the euro, the Australian dollar and commodities.
Clear signs that the euro zone and other major economies are losing steam have prompted investors to expect some central banks will start to cut interest rates to shore up growth, just as the Federal Reserve is expected to keep rates steady for a while.
Analysts said the dollar had been overdue for a reversal of its sharp gains, but it was still on the road to a medium-term recovery after a seven-year slide to record lows.