Sterling headed towards its third straight day of losses against the dollar on Friday, as speculation over more monetary stimulus encouraged traders to unwind bullish positions, with every bounce drawing more sellers. Cable also tracked moves in the euro/dollar, which was dragged lower by continued nervousness over Greece's ability to execute austerity measures and a ratings warning from Moody's on Italian banks.
Market chatter that the Bank of England could yet embark on another round of quantitative easing has already driven the pound 1.2 percent lower this week. It is headed for its worst weekly performance since early May, according to Reuters charts. Cable was last down 0.2 percent on the day at $1.5974, with traders citing support around the previous session's three-month low of $1.5938.
A break below that would leave the currency vulnerable to testing $1.5881, the 61.8 percent Fibonacci retracement of the December 2010 to April 2011 move higher, analysts said. "There has been some negative sentiment because of recent BoE minutes and declining rate hike expectations," said Adrian Schmidt, FX strategist at Lloyds. Adam Cole, global head of FX strategy at RBC Capital Markets said the pound would remain extremely sensitive to interest rate expectations. The euro was last down 0.4 percent at 88.70 pence, just above a session low of 88.62 pence.
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