Sterling eased against the dollar on Monday, extending losses seen last week after a surge in US government bond yields boosted the greenback broadly. The major data focus was seen on inflation this week, with key CPI figures due on Tuesday as investors look for further consolidation in inflation levels in line with Bank of England projections.
Data released earlier on Monday showed British factory gate prices rose broadly in line with expectations in May but input price growth picked up markedly, suggesting that price pressures are building in the economy - a scenario that could see the BoE opt for another sterling-boosting rate hike.
But for now, the market was still preoccupied with consolidating from lows seen last week as the dollar enticed investors spooked by the spike in US government bonds.
"By far the most important story is the dollar story and the yield story in the US. The longer term outlook for sterling is still a positive one, but if US yields move higher still then sterling will come under more pressure," Standard Chartered currency strategist Marios Maratheftis said. By 1421 GMT, the pound was down 0.1 percent on the day against the dollar at $1.9669, while the euro was steady at 67.84 pence.
Sterling was also down versus the Japanese yen, reflecting residual pressure felt on carry trades after the Reserve Bank of New Zealand intervened overnight on currency markets to sell the New Zealand dollar.
Later on Monday Bank of England Governor Mervyn King is due to give a speech at a Confederation of British Industry dinner which will be monitored for any further insight on BoE policy.
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