Sterling hits 2-1/2 year low versus dollar

Sterling fell to a 2-1/2 year low against the dollar on Monday as hedge funds and long-term investors sold the pound, which they see as susceptible to more weakness given contrasting outlooks for the British and US economies. While strong US jobs numbers late last week bolstered speculation that the Federal Reserve may curtail its asset purchase programme later this year, Britain may be set to enter its third recession in four years.
That is likely to drive the Bank of England to print more money to support the economy. As a result, investors are likely to sell sterling on any upticks and the pound is likely to suffer in coming days and could ease towards $1.47, traders said. The pound has been one of the worst performing major currencies in 2013, falling 8.4 percent against the dollar and 7.6 percent against the euro. Its latest losses dragged the trade-weighted sterling index back down to a 20-month low of 78.10 first struck on February 25, data from the Bank of England showed.
"The downtrend is quite well established, the momentum is still very strong to the downside and to fight against that you need some news flow moving in the opposite direction but it's not sure what that is going to be," said Daragh Maher, currency strategist at HSBC. Sterling earlier shed 0.3 percent to $1.4868 - its lowest since mid-2010 - with some bids from Asian central banks cited at $1.4860/70 that could check losses for now. It was last down 0.2 percent at 1.4890.
The pound fell below $1.49 for the first time in more than 2-1/2 years on Friday on news that US non-farm payrolls surged by 236,000 last month, pushing the jobless rate down to 7.7 percent - the lowest since December 2008. The spreads between two-year US government bonds yields and their British counterparts are moving in favour of US debt, underpinning dollar demand.
The pound also lost ground against the euro. The euro was last up 0.3 percent against sterling at 87.30 pence, though some said the euro's gains are likely to be curtailed by lingering concerns about Italy. Fitch lowered Italy's sovereign rating by one notch to BBB-plus, with a negative outlook, due to political uncertainty after inconclusive elections.