(Updates with late New York prices)
* Euro steady after big falls in last two sessions
* Sterling gains on euro, hits 16-month peak
* Ukraine referendum condemned in Europe, markets unmoved
* ECB's Nowotny says rate cut not enough to combat low
By Daniel Bases
NEW YORK, May 12 The euro held steady against
the dollar and advanced against the yen on Monday, unperturbed
by the weekend referendum in Ukraine in which pro-Russian rebels
declared victory in a self-rule vote, further escalating
Against sterling however, the euro fell to a 16-month low on
growing bets the European Central Bank will ease monetary policy
just as the Bank of England prepares to raise interest rates.
"We think that near-term data is likely going to allow
market participants to continue to romance the possibility that
the Bank of England becomes the first of the G4 central banks to
embark on policy tightening," said Brian Daingerfield, currency
strategist at the Royal Bank of Scotland in Stamford,
"Certainly the stronger data is likely to lead the market to
see the BOE's dovish message as perhaps a bit less credible,"
Dealers said the market had calmed after a turbulent
reaction to ECB President Mario Draghi's statement last week
that the bank was "comfortable" with easing monetary policy in
Analysts pointed to appearances by some of Draghi's
colleagues, most notably Bundesbank chief Jens Weidmann, as
possible sources of more clarity on whether the bank is really
ready to act.
The euro's gains were trimmed after Austrian central bank
chief Ewald Nowotny told reporters it would take more than a cut
in interest rates to combat low inflation in the euro zone.
Expectations for a BOE rate increase helped push the yield
premium offered by two-year British gilts over euro
zone bonds to its biggest since 20008. A BOE
quarterly inflation report on Wednesday could include changes to
the central bank's interest rate outlook given Britain's
stronger-than-expected economic recovery.
The euro fell as low as 81.43 pence, its weakest
against sterling since January 2013. Sterling rose 0.10 percent
The euro traded unchanged against the greenback at $1.3757
, having tumbled last week from a 2-1/2-year high of
Markets showed little reaction to the Eastern Ukraine
voting, which overwhelmingly supported self-rule.
The European Union declared the referendum illegal and
increased pressure on Russia on Monday by taking a first step
toward extending sanctions to companies, as well as people,
linked to Moscow's annexation of Crimea.
"The story has been going on for a while and unless there is
a significant escalation, at least in G10 markets, they have
learned how to live with it," said Vassili Serebriakov, currency
strategist at BNP Paribas in New York.
"There were some concerns about the referendum obviously,
but it looks like risk is holding up fairly well," he said.
The euro edged up 0.30 percent to 140.54 yen from
a two-month trough of 139.84 yen hit Friday. The dollar rose
0.30 percent to 102.16 yen.
(Reporting by Daniel Bases; Additional reporting by Patrick
Graham and Anirban Nag in London, Ian Chua in Sydney and
Masayuki Kitano in Singapore; Editing by Toby Chopra, Dan
Grebler and James Dalgleish)