Sterling fell towards its lowest in 13 months against the buoyant dollar and was under pressure against the euro on Tuesday, after weak UK construction data added weight to speculation the Bank of England may resort to more easing. The pound was also under pressure along with other riskier assets and higher-yielding currencies as growing funding problems weighed down on the banking sector with some European banks under intense selling pressure due to their exposure to Greece.
The UK Markit/CIPS construction PMI headline activity index fell sharply to 50.1 in September from 52.6 in August, its lowest reading in 10 months and weaker than forecasts of a drop to 51.5. Sterling was down 0.5 percent at $1.5351, not far from its recent low of $1.5326 which was its lowest level since early September 2010.
"A break below the $1.5320/25 level should see some more sell-stops being triggered dragging it lower," said Richard Wiltshire, chief forex trader at ETX Capital. "Sterling is looking very heavy going into the BOE decision on Thursday." Earlier in the session, traders said there was interest in buying sterling around $1.5400/10 from Eastern European names and Asian sovereigns.
"Any individual piece of data that reinforces the message the economy is not in fantastic shape and points to the Bank potentially implementing further (quantitative easing) will get a negative response from the currency," said Michael Derks, chief strategist at FX Pro. The euro climbed versus sterling following the release of the construction PMI, and was last up 0.6 percent at 85.85 pence. It recovered from a session low of 85.34 pence with traders citing offers above 86 likely to cap gains.