Fatigued sterling eases after payrolls, ECB boost for euro

By Patrick Graham

LONDON, March 7 (Reuters) - Sterling fell against the euro and the dollar on Friday as upbeat signals for both of its major currency peers added to a sense that the pound's strong six-month run higher looks increasingly stretched.

The British currency continues to take support from an improving economy and the prospect that the Bank of England will be the first major central bank to raise interest rates next year, and its losses were not large - around 0.1 percent against the dollar and 0.2 percent versus the euro.

But many players now say the bulk of the good economic news is priced into the pound, along with the majority of supportive flows related to a major U.S. asset sale by Vodafone.

"If you look at the price action on sterling, it is looking more than a little fatigued," said Stephen Gallo, strategist with Canadian bank BMO in London.

"I still think we'll see $1.70 in this cycle, maybe in the middle of the summer, but you just get the feeling that people think this move may stall at the moment."

Sterling traded at $1.6720 and 82.95 pence per euro in late European trade.

The day's main move was a surge for the euro against the dollar after the European Central Bank added details of a hefty loan repayment next week from banks to its decision to steer clear of any further easing of monetary policy a day earlier.

That turned around somewhat on the back of non-farm payrolls data which showed U.S. employers added a robust 175,000 jobs to the market last month, reinvigorating faith in a U.S. recovery which has stalled somewhat in the face of a harsh winter.

Overall, that left sterling back in the sort of ranges in which it has traded since mid-February.

"It will take more than one big beat to turn sentiment towards the dollar around," said Marshall Gittler, head of FX strategy at IronFX.

"The hope for us dollar bulls is that this is the first of a string of U.S. indicators to beat estimates on the upside. That's what's necessary to change the market's view on the trend for U.S. rates and therefore the trend for the dollar."