Sterling slipped on Tuesday, stung by broad strength in the euro, and faces more selling pressure if weak UK GDP data further dampens expectations for an interest rate rise in the coming months. Traders said demand from a UK bank for euros against sterling had a knock-on effect on the pound versus the dollar, pushing it further away from a 16-month high hit last week.
By late London trade, sterling traded 0.3 percent lower on the day at $1.6445. The pound has been boosted in the past few weeks by a broadly weak dollar, but analysts say that support may crumble if a reading of first quarter GDP due on Wednesday shows the UK economic recovery remains patchy.
A Reuters poll forecasts GDP rose only 0.5 percent in January-March from the previous quarter, after a surprising 0.5 percent contraction in the last three months of 2010. Sterling suffered against the euro, which rose roughly half a percent on the day to a session high of 88.93 pence.
Against the dollar, the pound pushed further away from $1.6600 hit on Thursday, its strongest since late 2009. London's financial markets were closed on Friday and Monday for the Easter holiday. However, sterling managed to hover above a session low of $1.6437 as Middle East names were seen covering short positions after pushing.