Sterling fell to a six-week low against the dollar on Tuesday as riskier currencies were hampered by concerns about failed plans to cut the US deficit and the eurozone's entrenched debt crisis. Data unexpectedly revealing the US growth was slower than earlier estimated in the third quarter added to worries about risks to the global economy, denting equities and pushing the pound as low as $1.5582, its weakest since mid-October.
This took sterling below a reported options barrier at $1.5600, though traders said it stopped short of stop loss orders at $1.5680, helping it recover to trade last at $1.5641. "I think the $1.56 area is a reasonable place to get long of sterling but there are downside risks to that view if we see a sharp decline in equities," said Adrian Schmidt, currency strategist at Lloyds Banking Group.
With trade thin and uncertainty high, market players said moves were mainly flow-driven, with a lack of market-moving data or newsflow in the UK leaving the pound dragged around by moves in other major currencies. Sterling also fell to a three-week low versus the euro, with the single currency rising as high as 86.65 pence before steadying to 86.26 pence. The euro stopped shy of resistance at 86.67 pence, the 55-day moving average. Traders said the market was too short of euros in the near term, which was helping the single currency rebound against the dollar and the pound, but concerns over the debt crisis were likely to check gains.
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