Sterling trimmed losses versus the dollar on Monday after an outlook downgrade to the US sovereign rating put the brakes on the greenback's rise, but the pound may struggle as investors price out the possibility of a UK interest rate rise next month.
The UK currency gained against the euro, which winced as speculation that Greece will require a restructuring of its debt highlighted serious debt problems in the eurozone.
The pound fell around half a percent on the day to a session low of $1.6232, but the UK currency clawed back after ratings agency Standard & Poor's cut its outlook on its triple-A rating of US sovereign debt to negative. The S&P announcement pushed sterling to $1.6320, near the day's high of $1.6329 hit earlier in the day. It pulled back to around $1.6280 in late London trade as its topside was clipped by selling by a Swiss bank, traders said.
On the day, the pound traded 0.3 percent lower against the dollar, and analysts said sterling may face selling pressure in the near- to mid-term if investors continue to trim long positions in the currency. Data from the Commodities and Futures Trading Commission shows speculators trimmed long sterling position last week after building them up aggressively the previous week.
A pullback in speculation for a May rate rise kept sterling well below $1.6430 touched earlier this month, its highest since late 2009. But it rose against the euro, which fell 0.8 percent to 87.70 pence, below trendline support at 88.02, drawn from a low hit in mid-February. Analysts said a clean break below this level could open the door to more losses.
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