Sterling hits six-month low vs dollar on gloomy outlook

LONDON: Sterling fell to a six-month low against the dollar and slipped against the euro on Tuesday with investors nervous about the bleak outlook for the UK economy.

The pound fell 0.3 percent on the day to hit $1.5601, its lowest level since Aug. 10. Traders said stop loss sell orders were triggered around last week's low of $1.5630.

Strategists said sterling may find temporary support from UK inflation data due at 0930 GMT. Stubborn price pressures could prompt investors to trim bets on further monetary easing, which is seen as negative for a currency as it increases supply.

Any gains for sterling were expected to be fleeting, however, and outweighed by wider concerns about weakness in the economy and the risk of the Bank of England giving a downbeat growth outlook in Wednesday's quarterly inflation report.

"There's a risk to the upside for this (inflation) number. If that's the case it might provide for sterling temporarily a little bit of support," said FxPro chief strategist Michael Derks.

"But it appears some larger players remain fairly negative on the currency and at a slightly higher level for sterling we may rediscover they have further selling interest."

UK inflation is forecast to be 2.8 percent in January, up from 2.7 percent the previous month and still above the BoE's target of 2.0 percent.

The euro rose 0.3 percent on the day to 85.79 percent, having gained more than 1 percent against the pound the previous day.

The single currency has rallied strongly against sterling since the start of the year, hitting a 15-month high of 87.17 pence on Feb. 1, on increasing optimism that the worst of the euro zone debt crisis is over.

In contrast, many investors are nervous about the UK slipping into another recession after data in January showed the economy shrank in the final quarter of 2012.

Market players were wary ahead of Wednesday's inflation report after the central bank last week released a statement saying risks to the UK economy are weighted to the downside, knocking sterling.

"Markets will be more interested in tomorrow's quarterly BoE inflation report ... with speculation rising that the Bank may well cut its growth forecast once again, raising the prospect of further sterling weakness," Michael Hewson, senior analyst at CMC Markets said in a note.