Sterling fell to a 1-month low against the dollar on Monday on waning risk appetite, but trimmed losses against the euro as investors sold the common currency with the threat of a euro zone debt contagion driving some to seek safety in UK assets.
Sterling was down 0.5 percent on the day at $1.5703, having fallen to $1.5688--its lowest since Oct. 20 with stops cited below $1.5680. Decent offers from funds, East European and Russian investors are said to be placed at $1.5780-1.5800 and which would cap sterling's upside.
Against the euro, sterling erased some of its earlier losses to trade marginally lower on the day at 85.675 pence . The common currency has risen to a session high of 85.945 earlier in the day. Option expiries at 85.50 pence for the 1500 GMT cut is likely to sway trade, traders said.
The euro was under broad pressure on Monday with 10-year Spanish bond yield spreads widening over their German Bunds with a change in the government in Spain doing little to calm investors.
In fact, investors are more anxious about the debt contagion now engulfing the region's bigger economies like France.
Those concerns are likely to keep the pound supported against the euro as investors seek to exit the euro zone for the relative safety of countries like the UK and the United States.
Still, sterling was vulnerable against the dollar with investors looking to sell on rallies given a fragile UK economy and the likelihood of further BoE asset purchases. Latest data showed speculators had added to their bearish positions on sterling in the latest week to Nov. 15
"The euro is under pressure, but sterling isn't everyone's darling exactly," said a spot trader in London. "We think more quantitative easing is back on the radar and recent data out of the UK has been pretty grim of late."
On Wednesday, minutes from the BOE's latest monetary policy committee (MPC) meeting will be released. At the meeting the MPC left rate unchanged at 0.5 percent and the target for asset steady at 275 billion pounds.
Analysts said the minutes will reflect policymakers readiness to extend quatitative easing further. Last week, BoE policymaker Martin Weale said there was a "very strong case" for extending the central bank's QE programme next year.
Another BOE policymaker, Adam Posen--a perennial dove--also argued that high inflation is not a threat and economic outlook has turned out to be grim, as forecast..
"We expect sterling to remain an underperformer and anticipate any near term rebound in GBP/USD to remain limited," Morgan Stanley analysts said in a note. The firm has a near term target of $1.5630.
Still, analysts said sterling's rather robust performance, where it has held above the $1.55 mark despite QE from the BOE, indicated that it is becoming a safe haven currency of sorts, benefiting from the UK's own independent central bank, which has embarked on a campaign to support flagging growth.
Data on Monday showed UK shopper numbers between August and October fell at the fastest rate since last December's heavy snow, as cash-strapped Britons tightened their purse strings, a survey said on Monday.
Industry lobby group the British Retail Consortium (BRC), said footfall was down 2.3 percent over the three months compared with the same period last year.
read more: Olympus Wealth Management
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