Sterling fell to a one-month low against the euro on Monday as favourable rate differentials boosted the single currency and an International Monetary Fund report raised the prospect of further loose UK monetary policy. The IMF's annual economic assessment said the UK economic recovery was broadly on track but more quantitative easing may be required if growth proves to be persistently weak.
Reaction to the report, combined with expectations the European Central Bank will flag an interest rate hike at its meeting on Thursday, helped the euro shrug off lingering worries over Greek debt and reach a session high of 89.38 pence. The euro was last up 0.3 percent at 89.35 pence, with near-term support cited near the June 2 high of around 88.65 pence. The next target is the key psychological level of 90 pence, last reached on May 5.Hopes of an interim solution to the Greek debt crisis helped lift the single currency last week, although sentiment remains vulnerable to comments from euro zone policymakers.
The euro slipped earlier in Monday's session after a German finance ministry spokesman said it was not certain whether there would be a second bailout for Greece and on what terms.
Against a weak dollar, sterling was down 0.5 percent at $1.6344, with traders citing support below $1.6280 and $1.6410. Sterling broke past stops below $1.6395, having earlier on steady selling by East European names. Speculators have cut their net short positions against the pound, data from the Commodity Futures Trading Commission showed, with speculators trimming net shorts in the week to May 31 from the previous week's 14,143 contracts.
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