LONDON: Sterling traded close to its weakest in three weeks against the dollar on Monday amid widening rate differentials between the United States and Britain after robust jobs numbers strengthened speculation of a rate hike by the Federal Reserve.
In contrast, the Bank of England kick-started its quantitative easing programme on Monday, have lowered interest rates to record lows last week to stave off an economic slowdown in Britain after the Brexit vote.
The BoE also cut growth forecasts for next year and hinted at more easing to come, all of which is likely to see the pound stay under pressure in the medium term. Data from the Commodity Futures Trading Commission released on Friday showed speculators' bets against the pound were at a record high just before the BoE meeting last week.
Investors have been selling sterling since November last year and the pound has fallen over 13 percent since Britain's vote on June 23 to leave the EU.
Sterling was down 0.25 percent at $1.3035, not far from a three-week low of $1.3021 touched on Friday. The yield gap between the 10-year US Treasuries and their UK counterpart was at it highest since July 2000, reflecting the contrasting outlooks on monetary policy.
"At the moment sterling/dollar still appears heavily tipped in favour of sellers," Jameel Ahmad, chief market analyst at FXTM, said. He added that the threat of even lower rates in the UK will continue to see investors sell the pound. The euro was up 0.15 percent at 84.955 pence, trading near its highest in three weeks.
Traders said focus will turn to British industrial data and trade deficit for June to be released on Tuesday. Forecasts are for industrial production to show a 0.1 percent rise from a month earlier, while the trade deficit is expected to widen.
Still, some analysts are cautious given the poor run of data since the Brexit referendum.
"A fall in industrial production in June should be no surprise after the poor PMI figures," said Marshall Gittler, head of investment research at FXPrimus. "On the other hand, a small narrowing of the trade deficit may be taken as encouraging and could boost sterling."
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