The pound dropped by 1-1/2 US cents to two-week lows on Wednesday after comments from US Fed chief Alan Greenspan gave an upbeat assessment of the US economy and reinforced expectations of higher interest rates.
Minutes from the Bank of England's July monetary policy meeting kept alive expectations of a UK interest rate rise in August.
However, Britain-specific news played second fiddle to US news as the market bought back dollars it had sold on the expectation of a tamer rate outlook.
"There's a general fallout of positions, it's not sterling specific, it's the dollar," said Adrian Schmidt, market strategist at Royal Bank of Scotland Financial Markets.
By 1510 GMT the pound had shed around one percent on the day, hitting a session low of $1.8329. It has lost over four cents from 4-1/2 month highs set against the dollar on Monday. Against the euro it lost around a third of a percent to 66.77 pence before the euro itself began to lose more sharply against the surging greenback.
The pound also dropped to a two-week low on its trade-weighted index to 105.7, having hit a one-month high on Monday.
Greenspan gave an upbeat semi-annual review of monetary policy to the Senate Banking Committee on Tuesday and said he couldn't rule out a push to inflation from prolonged monetary accommodation.
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