Sterling slipped against a rallying dollar on Monday, after yet another set of weaker-than-expected economic UK data boosted bets that the Bank of England will not raise interest rates any time this year. Numbers released on Monday showed Britain's construction sector grew last month at its slowest rate since July 2013, well below economists' forecasts, with civil engineering posting an outright fall.
Sterling retreated to $1.5235, down 0.6 percent since the close of trade on Friday, keeping the pound near a 17-month trough of $1.5185 hit overnight. That move coincided with a surge for the dollar, which reached multi-year highs as investors bet that strong US growth will prompt the Federal Reserve to start raising interest rates in 2015, while its peers keep monetary policy ultra-loose in an effort to boost inflation and growth.
"Although the weaker UK data would have been a factor I think the biggest market-mover here (for sterling) was the move lower on euro/dollar - it had a knock-on effect because euro/sterling doesn't seem to want to budge that much," said Jane Foley, a senior currency strategist at Rabobank. Sterling was flat against the euro at 78.31 pence. Against the dollar, the single currency was trading close to a nine-year low of $1.18605 on growing speculation that the European Central Bank is set to embark on a programme of quantitative easing.
The pound had suffered its steepest daily fall against the dollar in 4-1/2 years on Friday after a survey of Britain's manufacturing sector showed factory growth slowing to its weakest in three months. "The soft data underlines that Britain's manufacturing exports will remain soft," said Nawaz Ali, analyst at Western Union. Sterling has shed around 11 percent in the past six months as investors have pushed back bets on when the BoE will start raising interest rates.
Many now reckon the bank rate, which has stood at 0.5 percent since March 2009, will stay unchanged this year. The pound was also hurt by growing political uncertainty after Prime Minister David Cameron said on Sunday that he would like to bring forward a planned referendum on Britain's membership of the European Union from 2017 if possible.
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