LONDON: Sterling fell on Monday, moving lower in line with other currencies perceived as a higher risk and weighed down by expectations that a worsening UK economy would drive the Bank of England to pump yet more money into the economy soon.
The pound had eked out modest gains last week after the BoE Governor Mervyn King dashed speculation it could cut interest rates shortly, despite downgrading its forecast for the recession-hit UK economy.
The BoE looks more likely to restart its quantitative easing programme instead to support the economy. Quantitative easing is seen as negative for the pound as it involves the central bank flooding the market with the currency.
A slew of weak UK economic data this week could cement expectations of further easing, analysts said.
"The pound faces a barrage of dangerous news. The UK sees inflation, unemployment and retail sales data this week, as well as Monetary Policy Committee (MPC) minutes," said Kit Juckes, currency strategist at Societe Generale.
"Short sterling/dollar with a stop at $1.5750 could be an attractive position to start the week."
Sterling was down 0.2 percent at $1.5665, with near term resistance seen at its 200-day moving average of $1.5723.
It was also lower rose against the euro. The euro was up 0.1 percent at 78.38 pence with bids cited below 78.30 and offers above 78.50 pence.
"On euro/sterling, broader euro-area stress should dominate as a driver of BoE policy expectations," BNP Paribas said in morning note.
"We continue to remain wary of upside risks to euro/sterling in the weeks ahead, given the expectations of ECB action to lower sovereign debt yields."
However, in the longer term BNP expects the euro to lose ground against the pound as the UK is likely to outperform the euro zone economy with monetary easing offering the British economy robust support.
Minutes from the BoE's latest monetary policy committee this week may provide more clues as to how soon further easing may be ordered.
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