Sterling clambered back from a 5-month low versus the dollar in volatile trade on Tuesday but analysts said the outlook for the pound was weak after UK inflation unexpectedly eased, denting slim rate hike chances. The pound also faces pressure from concerns that the eurozone debt crisis is spreading to Italy and Spain, which has sent investors towards safe haven currencies such as the dollar and the Swiss franc.
Sterling traded flat on the day at $1.5900 in afternoon dealing, paring losses after initially dropping to $1.5781 on the CPI data, its lowest since late January. It bounced away from support around $1.5786, the 38.2 percent retracement of the May 2010 to May 2011 rise, helped by a squeeze of short euro positions in afternoon trade.
Sterling extended losses from the previous session against the Japanese yen, hitting a four-month low at 125.14 yen before bouncing to 126.40. It also dropped to a record low versus the Swiss franc of 1.3156 francs. Analysts said sterling would be pulled around by moves in the euro against the dollar and developments in the eurozone debt crisis. The euro was down 0.1 percent at 88.08 pence after earlier sliding to 87.49 pence.
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