Sterling hits 6-wk low vs broadly firmer dollar
An absence of UK data on Monday meant sterling's direction was driven largely by external factors. The dollar index hit its highest in over six weeks after Friday's US jobs data was seen reducing the chance of more monetary stimulus from the Federal Reserve. Sterling fell to $1.5603 against the dollar, its lowest since January 25, before recovering slightly to trade at $1.5616 with losses of around 0.4 percent on the day. Traders said stop-loss sell orders were hit on the break of the February low of $1.5644, but reported demand for sterling on the approach to $1.5600. "This is a dollar move rather than a sterling move. We're entering a new regime where better US data is dollar positive and structurally it can keep outperforming," said Geoff Kendrick, FX strategist at Nomura. Latest IMM data showed speculators have increased short positions in the pound in favour of the dollar. Technical analysts also said sterling's outlook was becoming increasingly bearish, having broken below support from the 55- and 50-day moving averages around $1.5669 and $1.5684. "We think cable (sterling) should be back towards $1.50 as a first stopping point. We have been expecting broad dollar strength and sterling to be part of that story," said Clive Dennis, head of currencies at Schroders, who held a short sterling/dollar position. UK OUTLOOK UNCERTAIN The economic outlook in the UK remained uncertain, with soft industrial production data on Friday adding to investors' reluctance to hold sterling. The Bank of England left interest rates on hold and kept its quantitative easing target at 325 billion pounds last week after February's Monetary Policy Committee meeting showed growing internal divisions over whether more asset purchases were needed to support growth. BoE policymaker Paul Fisher was due to address the Warwick Alumni Group in London on Monday evening, and investors were likely to scrutinise his speech for any hints of the central bank's future policy path. The euro rose around 0.6 percent for the day versus sterling to 84.12 pence, its highest level since the end of February. Some market players said they saw this level as a good opportunity to sell the euro however, given worries over contagion from the euro zone debt crisis. The single currency was seen as likely to struggle on concerns that Portugal could be the next to come under pressure in the troubled peripheral debt markets after Greece secured a debt swap last week to avert a disorderly default. "The euro fundamentals are weak which should see a marginal bid for gilts at the expense of euro zone debt and put pressure on euro/sterling, which I think is close to a sell here," said Nomura's Kendrick. Sterling has benefited in recent months as investors seeking to cut exposure to the euro zone debt crisis diverted portfolio flows into UK gilts. Copyright Reuters, 2012