Sterling recovered from a seven-week low against the dollar on Monday, tracking gains in stocks as risk sentiment showed signs of some improvement, although the pound could run into selling on expectations of gloomy government economic forecasts. It rose nearly 1 percent on the day to a session high of $1.5595, before curbing some gains to last trade up 0.6 percent at $1.5542.
Market players said comments from Bank of England policymakers at a Treasury Select Committee hearing that more asset purchases may be needed to boost UK economic growth helped to curb some of sterling's gains. The pound could come under further selling pressure on Tuesday when the UK government gives its autumn budget statement. The statement is expected to contain a significant cut to the country's growth forecast given ongoing signs that the economy is struggling to recover.
Market participants warned that a nation-wide strike of public sector workers scheduled for Wednesday may also sour sentiment for UK assets among foreign investors if they call into question the future success of dramatic austerity measures. A short squeeze also helped to boost the pound as market players covered bets on sterling losses that were starting to look stretched. Despite its gains, sterling hovered in range of a low of $1.5423 touched late last week, its weakest since early October. The euro rose 0.1 percent to 85.79 pence.
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