Sterling falls against dollar

LONDON: Sterling fell against the dollar on Friday, tracking falls in the euro versus the US currency while sentiment remained soured by a weak outlook for the UK economy and the possibility of further monetary easing by the Bank of England.

Analysts said in the absence of any significant data out of the UK until next week, sterling was likely to take its cue from movements in other currencies, with the euro pushed lower by concerns about the debt crisis in the euro zone worsening.

Risks to the UK are being amplified by the knock-on effects stemming from the euro zone's debt crisis and mounting worries over banking sector health, given the importance of the financial sector to the UK economy.

Analysts expected the weak UK economic outlook to limit sterling's ability to capitalise on weakening sentiment towards the euro, keeping the single currency above last week's low of 86.44 pence.

"There was some talk of sterling becoming another reserve currency due to debt problems in the US and the euro zone, but the UK has problems on its own so sterling will stay in a range," said Geraldine Concagh, economist at AIB Group Treasury in Dublin.

She expected the pound to stay between $1.6100 and $1.6500 against the dollar.

Sterling was down 0.3 percent at $1.6190, above a three-week low of $1.6111 hit on Thursday.

Although it was supported above its 200-day moving average at $1.6087 it remained below its 55-day average at $1.6217 and its 100-day average of $1.6266 and technical analysts said a close below these levels was likely to be a bearish signal.

"The larger pattern (in sterling/dollar) suggests maintaining a modest bearish bias rather than an aggressive one. Against resistance in the 1.6230/65 area, we are looking for a push towards 1.6000/1.5975," Barclays technical analysts said in a note.

The euro was steady at 87.62 pence, capped in a tight range below its 100-day moving average at 88.21 pence and above the recent low of 86.44 pence.

The weak state of the UK economy was reflected in data from major British retailer John Lewis, which reported a 1.4 percent fall in department store sales in the week to August 6.

The BoE on Wednesday cut its expectation for annual GDP growth to around 2.0 percent for the fourth quarter of 2011. In May, it had forecast 2.5 percent growth by the end of the year. The bank also said inflation would fall rapidly in 2012.

Markets expect the BoE to keep interest rates at record lows into 2013, with a growing feeling that another round of quantitative easing could be on the cards to stimulate growth, a tool which BoE governor Mervyn King has said may still be needed.

Copyright Reuters, 2010