Pound falls broadly as risk aversion sentiment weighs

LONDON (Reuters) - The pound fell broadly on Monday, with the euro rising to a five-week high against the pound as investors turned risk-averse before a slate of U.S. corporate earnings and on concerns about the economic outlook.

Traders braced for releases this week including those from Goldman Sachs (GS.N) on Tuesday, as well as JPMorgan Chase (JPM.N) and Citigroup (C.N) later in the week.

Goldman is forecast to post banner earnings in the second quarter, but other banks are seen struggling.

"The primary driver of the sterling crosses is likely to be the performance of the U.S. banks in Q2 and resulting moves in price relative to financial stocks globally," said Adam Cole, global head of FX strategy at RBC Capital Markets.

The euro hit a five-week high against sterling of 86.99 pence, according to Reuters data. By 3:12 p.m., it was up 0.7 percent at 86.52 pence.

The pound fell 0.7 percent at $1.6081 after hitting a session low of $1.6034. It fell to a one-month low of $1.5983 last week.

Sterling also fell against a broadly firmer yen, down 0.9 percent on the day at 148.31 yen.

"Sterling is particularly at risk and will likely underperform against other major currencies," said Ian Stannard, senior currency strategist at BNP Paribas.

Stannard said the larger risk-aversion picture was hurting sterling, compounded with UK-specific factors. "We expect more negative data to come out of the UK," he said.

Market players will keep an eye out for data later this week, kicking off with retail sales by the British Retail Consortium. Inflation figures due out on Tuesday will be closely watched. Economists expect consumer prices to post a 1.8 percent increase in June from the same period a year ago, which would be below the Bank of England's target of 2.0 percent.

Labour market statistics are due out on Wednesday.

The pound was under pressure on other UK negative factors.

The Sunday Times reported Lloyds Banking Group is likely to write off as much as 13 billion pounds on its loans to commercial property, businesses and mortgage holders.

Separately, fast food giant McDonald's (MCD.N) will relocate its European headquarters to Geneva from London to take advantage of preferential intellectual property tax laws, the Financial Times said.

UK finance minister Alistair Darling said on Monday Britain should return to growth in 2009, although the fate of the global economy remains uncertain.

"I remain confident that our economy will see growth return at the end of the year," Darling told reporters after meeting U.S. Treasury Secretary Timothy Geithner in London.