LONDON: Sterling rose against a weaker dollar on Monday, although gains are still likely to be held in check by concerns about the uncertainty generated by Britain's vote to leave the European Union and expectations of more interest rate cuts in coming months.
The Bank of England kept rates at record lows on Thursday but signalled that it would cut them again before the end of the year. It cut rates to 0.25 percent in early August and relaunched an asset-purchase programme to cushion the economic blow from Brexit.
Traders said sterling's weakness accelerated late last week on a media report that UK Chancellor of the Exchequer Phillip Hammond was ready to give up access to the single market to achieve immigration restrictions during the Brexit negotiations.
"There are increasing forces within the government pressing for a hard exit putting immigration ahead of EU market access," said Hans Redeker, head of currency strategy at Morgan Stanley.
"Things look increasingly messy and with the UK government not defining a clear position concerning its exit strategy uncertainties will remain high. What matters for sterling is the medium-term investment outlook and here the outlook is negative."
A survey by Lloyds Bank showed on Monday that British companies scaled back their investment plans in the month after Britain voted to leave the European Union.
Sterling rose 0.4 percent to $1.3058, having hit a one-month low of $1.2999 early on Monday. On Friday it lost 1.8 percent and it shed 2 percent for the week as a whole, its worst weekly performance since early July.
The dollar was 0.2 percent lower, giving up some of the robust gains it made on Friday with investors cautious before the Federal Reserve meeting this week.
The pound was also up 0.35 percent against the euro at 85.45 pence per euro, having dropped to three-week low earlier on Monday.
Meanwhile, latest data from Commodity Futures Trading Commission showed that speculators trimmed bets against the British pound in the week to Sept 13.
Their cutting of unfavourable bets saw the pound hit a seven-week high of $1.3445 on Sept 6, more than 5 percent above the three-decade low plumbed in July soon after the EU referendum. But since then, with Governor Mark Carney leaving the door open to more easing, sterling has shed ground.
"The pound has been left open to selling in recent days after the BoE strongly indicated that the Monetary Policy Committee would not hesitate to cut interest rates once again if the UK economic outlook deteriorates in the final months of 2016," said Jameel Ahmad, chief market analyst at FXTM.
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