Sterling hit a three-week low against the dollar on Thursday after a weak reading of UK industrial output bolstered expectations that a patchy economic recovery will keep UK interest rates low this year. The pound plumbed a session trough of $1.6235, its weakest since mid-April. Its losses mounted after a steep selloff in commodity prices prompted investors to dump higher-risk currencies, including sterling, for relatively safer dollars.
Analysts see a fall towards $1.60 as investors continue to price out the possibility of more than one Bank of England rate rise this year, despite a hawkish inflation outlook released on Wednesday. Adding to the view that UK growth will be sluggish this year, data showed UK industrial output rose 0.3 percent in March after a 1.2 percent fall in February, less than half the 0.8 percent gain forecast by economists.
Sterling initially fell about half a cent to around $1.6250 after the output data, after stop-loss orders were triggered through $1.6290 and $1.6280. It then recovered to around $1.6310 due to buying by a European semi-official name, traders said. But broad demand for the dollar later pushed the pound as low as $1.6235, down 0.6 percent on the day. The euro rose around half a percent to a session high of 87.31 pence, moving further away from an earlier seven-week low against the pound of 86.73.