Sterling fell against the dollar on Monday, dented by caution ahead of a Bank of England policy meeting later this week, with trade thin and volatile due to London markets being closed for a public holiday. With Thursday's BoE meeting looming, analysts said many are wary of taking positions in sterling.
While reports that UK Prime Minister Gordon Brown has come in for criticism from a senior Labour Party politician also weighed on sentiment. After rising to a two and a half week high just shy of the key $1.50 level against the dollar overnight, the pound gradually drifted lower during European trade to fall comfortably below the $1.49 mark.
Traders and analysts said some European investors took advantage of thin trading conditions to push the UK currency lower, with low liquidity causing exaggerated movements on foreign exchange markets. "People don't want to take a position on sterling due to the risk of the BoE extending its asset buying programme," UBS currency strategist Geoffrey Yu said.
At 1316 GMT, sterling fell 0.2 percent against the dollar to $1.4894, while the euro was steady at 88.98 pence. Sterling had risen against the dollar earlier in the session as ongoing optimism that the global economy was over the worst of the recession fanned demand for currencies perceived to be higher risk.
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