Sterling erased gains versus the dollar on Monday, as the view the UK economy will continue to struggle knocked the pound from a session high hit after waning concerns about a Greek debt default had prompted short-covering in higher-risk currencies. The pound hovered near a 15-month low hit against the euro last week as investors awaited Thursday's central bank meetings in the UK and the eurozone.
A further monetary tightening by the European Central Bank is expected while UK interest rates are seen chained near record lows. Sterling has suffered against a widely recovering euro after the passage of Greek austerity measures last week helped the debt-laden country to avoid a default for now, resulting in a hefty bounce in the single currency. Sterling was flat on the day at $1.6065, retreating from a session high of $1.140.
The euro was flat on the day at 90.30 pence. Earlier on Monday, it struck a session high of 90.66 pence, but the single currency lost its upward momentum after ratings agency S&P warned a debt rollover plan that is being considered for Greece may still constitute a selective default.
It remains close to a 15-month high of 90.84 pence hit on Friday, however, and positioning in the single currency suggests a bias towards the upside. Sterling was at 1.3660 francs, up more than 3 percent from a record low of around 1.3256 francs hit last week. Thomson Reuters Matching data shows EUR/GBP's rally last week coincided with the highest trading volume seen in the pair since June 2010, indicating that the euro tends to gain as volumes increase. There was little reaction to UK PMI construction data which showed a modest slowdown in growth at 53.6, compared to forecasts of 53.7 and a previous reading of 54 in May.