LONDON: Sterling drifted lower against both the dollar and euro on Monday, with dealers citing one substantial late morning order as having moved currency rates in a session dominated by a correction to recent dollar gains.
The euro, also helped initially by Sunday's victory for Francois Fillon in the French right's presidential primary, was 0.3 percent higher against sterling after racking up its worst run of weekly losses against the pound since early 2015 last week.
Against the dollar, the pound slid half a percent, briefly trading below $1.24 for the first time in two weeks before recovering to $1.2422. It traded at 85.22 pence per euro.
"It's really been a day when sterling has tracked the moves in the dollar index," said Clara Leonard, a G10 strategist with BNP Paribas in London.
She said there had been no obvious impact of comments by Bank of England policymaker Gertjan Vlieghe, one of the strongest advocates of stimulus for the economy after June's Brexit vote, that supported keeping interest rates on hold.
Dealers said volumes had been thin when a chunk of buying had pushed sterling down late in the London morning, overturning some initial gains against a broadly weaker dollar.
"One of the things we've been emphasising is the dearth of liquidity and the market is vulnerable to moves like this," said Kamal Sharma, a strategist at Bank of America Merrill Lynch in London.
"I wouldn't say sterling is particularly on the radar at the moment, that might happen next week when we have the supreme court appeal. M4 foreign buying of UK gilts tomorrow may also be important."
The pound's long-term correlation with the dollar has kicked back in as the US currency rallied in the past month and some major investors began to argue the market had come far enough to account for the i
nitial risks related to Britain's planned departure from the European Union. That has made sterling among the best performing major currencies and given food to thought to the bears calling for a fall to $1.15 or lower in the first half of next year.
Lee Hardman, a currency analyst with Japan's MUFG in London, argued that the breakdown of third-quarter gross domestic product numbers also offered more hope. Business investment again topped expectations to grow by 0.9 percent on the quarter, although it was still down 1.6 percent year on year.
"The BoE has been warning that business investment would be the most vulnerable to heightened uncertainty related to the Brexit vote, but so far the negative impact is not yet evident," Hardman said.
"If the UK economy continues to defy expectations for a material slowdown in growth in the year ahead, it will create scope for pound weakness to reverse further."
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