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gbpLONDON: Sterling hit an eight-month low against the dollar on Monday, tracking losses in the euro which slumped as concerns over policymakers' lack of progress on the euro zone debt crisis fuelled demand for the relative safe haven of the greenback.

The pound fell to a session low of $1.5632, its lowest since January 12, and looked vulnerable to further losses as a slide in equities led investors to unwind exposure to riskier assets. Near term support is seen close to its late September 2010 lows of around $1.5600.

It also hit a 2-1/2 year trough against the yen, dropping to 119.50 yen on broad demand for perceived safe haven currencies.

Against the dollar sterling came under fresh downward pressure after breaking below $1.5781, a low hit in July which has become a key technical support level.

Traders said to sale through stop loss orders around $1.5680 and $1.5640.

"There is increasing uncertainty over policy response in the euro zone crisis to come from, which means safety first as people continue to sell equities and the dollar is king," said Chris Turner, head of FX strategy at ING.

Speculation that Bank of England minutes, due on Wednesday, will indicate policymakers are considering further quantitative easing also weighed on the pound. Further liquidity measures would flood the market with the UK currency and reduce demand.

Investors have been pricing in such a move from the BoE as recent comments from policymakers appear to signal they are increasingly ready to vote for further monetary stimulus to boost lacklustre UK economic growth.

The dollar, in contrast, was buoyed by expectations the Federal Reserve will resort to "Operation Twist" to boost the flagging US economy.

In Operation Twist the Fed would not expand its balance sheet and would seek to keep rates at the long end lower by purchasing longer-dated Treasuries and selling short-dated bonds.

Analysts said sterling was likely to remain under pressure until details of both the BoE minutes and Fed meeting were known on Wednesday, and could slide further if the BoE is seen as turning more dovish than its US counterpart.

"I think the minutes will show more votes in favour of QE," said Peter Kinsella, currency strategist at Commerzbank.

"More downside in cable would be the most obvious trade (if this is the case). I don't think euro/sterling will bounce considerably on this."

Analysts saw more room for the shared currency to fall due to speculation that Greece may not be able to deliver on the austerity measures required for it to secure another trench of bailout funds.

The single currency slipped 0.4 percent to 86.99 pence, and market players said buying by exporters just below 87.00 pence helped stem losses.

Any selling in the euro on concerns about the Greek debt crisis is expected to weigh on sterling versus the dollar, as investors are seen dumping higher-risk currencies for the relative safety of the highly liquid US currency.

Sterling's downward momentum was highlighted in the latest figures on speculator positions. IMM data from the CFTC showed another jump in net short positions in sterling or bets to sell the currency -- in the week ending Sept. 13.

Net short sterling positions roughly doubled to 26,193, approaching their highest of the year hit in July.

The move resulted from a turn in overall dollar positioning into net longs, for the first time since July 2010. It suggests net short sterling positions may build, pushing the pound lower, if market participants continue to plough into the US currency.

Copyright Reuters, 2011

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