LONDON: Sterling slipped to two-and-a-half week lows versus a broadly firmer dollar on Monday after strong US employment data boosted the greenback and made the pound more vulnerable to testing its February lows.
An absence of UK data on Monday meant sterling's direction was driven largely by external factors. The dollar index hit its highest in six weeks after Friday's US data was seen reducing chances for more monetary stimulus from the Federal Reserve.
Sterling was close to flat at $1.5677 after falling as low as $1.5656 in early European trade, not far from its February low of $1.5644.
"Cable does look susceptible to further downside risks through $1.5650 and I think we'll see an attempt on 1.5600 sooner rather than later," said Jeremy Stretch, head of currency strategy at CIBC.
"The dollar looks like it can maintain its resilience with the Fed unlikely to pursue additional monetary stimulus and the euro zone's woes keeping it in favour on safe-haven demand," he added.
Traders reported a cluster of sterling bids around $1.5650/45 with stop-loss sell orders lurking below there and on a break of $1.5600. Near-term support was the 55-day moving average at $1.5670.
"The pound continues to look fragile heading towards the February lows," said Michael Hewson, analyst at CMC Markets.
"A concerted break here argues for further weakness towards 1.5530 and 1.5420."
Latest IMM data showed speculators have increased short positions in the pound in favour of the dollar.
The economic outlook in the UK remains uncertain, with soft industrial production data on Friday adding to investor concerns.
The Bank of England left interest rates on hold and kept its quantitative easing target at 325 billion pounds last week after February's Monetary Policy Committee meeting showed growing internal divisions over whether more asset purchases are needed to support growth.
Bank of England policymaker Paul Fisher is due to address the Warwick Alumni Group in London on at 1915 GMT.
The euro traded slightly lower at 83.54 pence, stuck in the middle of this month's 83.13-83.99 range. Traders reported corporate euro selling interest against the pound which was expected to keep the common currency capped.
The euro struggled on concerns that Portugal could be the next domino to fall in the troubled peripheral euro zone debt markets after Greece secured a debt swap on Thursday to avert a disorderly default.
Technical analysts highlighted trendline support from the January lows coming in around 83.10, a level which coincides with this month's lows.
"Euro/sterling is largely stuck in a range but I would still favour selling rallies towards 84.00," said Stretch.
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