Sterling fell against the dollar on Monday, brushing off a higher-than-expected reading of UK manufacturing as the pound sold off in line with stock markets and other higher-risk currencies due to mounting worries about a Greek debt default. Sentiment towards the pound was fragile on expectations that more monetary easing may be needed to revive the economy. Some investors speculated that the Bank of England may announce more quantitative easing measures as early as this week.
The BoE will make a policy announcement on Thursday. Analysts said speculation about more QE will continue almost to the last minute given the services sector PMI due on Wednesday. "Today's data takes some of the possibility out of imminent QE, but the economy is still weak," said John Hydeskov, currency analyst at Danske. In late London trade, sterling traded 0.7 percent lower on the day at the day's trough of $1.5453, dragged down by the euro, which hit an 8 1/2-month low versus the dollar.
The pound initially fell shortly after the release of better-than-expected PMI data. Traders pinned the blame on a computer-generated trade. Traders said the September low of $1.5325 was the next key downside target for the pound, while options dealers said there had been good demand for downside sterling strikes in the $1.50/1.51 area. Losses against the dollar drove the euro 0.3 percent lower to a three-week low of 85.61 pence. The euro was rocked by Greece's admission it would miss its deficit target this year, raising speculation it may soon default on its debt.