LONDON: Sterling stayed near a three-year low against the dollar on Wednesday with further losses seen on the view that the Bank of England could ease monetary policy while the Federal Reserve prepares to scale back its stimulus programme.
The pound was up 0.3 percent at $1.4903, but traders said that was a technical bounce after the UK currency touched a three-year low on Tuesday and would be shortlived. Support was cited at its March 12 low of $1.4832.
"After yesterday's falls this is a natural bounce back in sterling with some buyers on dips, but the trend in cable (sterling/dollar) is going to be sustained downwards," said Neil Mellor, currency strategist at Bank of New York Mellon.
The pound slipped to $1.4814 in the previous session, its lowest since June 2010, hurt by weak factory output and trade data. It saw a slight rebound from those lows as buyers emerged on dips and also as a drop in US Treasury yields weighed on the dollar.
The BoE made it clear last week that it was in no hurry to hike rates while the Federal Reserve has signalled it will unwind its bond-buying programme later this year. .
This pushed the spread between 10-year US Treasuries and UK gilts to its widest since 2006 last Friday, pointing to more gains for the dollar.
Minutes of the Fed's June meeting and a speech by Chairman Ben Bernanke later on Wednesday would be the main driver for currencies and analysts said there was a chance that he would try to talk US yields down, but probably to little avail.
"The US economic recovery is gathering momentum so I think it will be a big struggle for the Fed to keep a cap on these yields," Mellor said.
The euro was flat at 85.95 pence, retreating from 86.69 pence, its strongest since mid-March.
The euro was likely to remain weak as the European Central Bank has indicated it would remain accommodative and also as the euro zone's economy continues to look sluggish. As Britain's largest trade partner, this threatens to hurt the pound.
"The renewed negative data shocks from core European countries are not only hitting the euro, but also currencies exposed to the euro zone, including sterling and the Swiss franc," analysts at Morgan Stanley said in a note.
"Hence, we expect the euro to come under further pressure against the dollar, but with sterling likely leading losses."
Investors, particularly hedge funds, were also looking to sell sterling against the euro on expectations that the BoE would be far more aggressive in easing monetary policy in coming months than the European Central Bank.
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