Sterling hit a two-week low versus the euro on Tuesday and matched a one-week low against the dollar as investors sold the pound on expectations the Bank of England would set a dovish tone in its upcoming Inflation Report. The UK currency brushed off signs the recession-hit UK economy was starting to find its feet again.
Numbers released on Tuesday showed a drop in house prices in England and Wales eased further in July and retail sales rose across Britain. Sterling has been under pressure since the BoE's surprise decision last week to expand its quantitative easing programme by 50 billion pounds to 175 billion pounds.
That raised expectations that Wednesday's report may say that inflation will remain below the bank's two percent target and that the bank could downgrade its growth forecasts. "Markets are generally biding their time ahead of tomorrow," said Paul Robinson, chief sterling strategist at Barclays Capital.
The euro marked a new two-week high of 86.15 pence and by 1515 GMT was down 0.1 percent on the day at 85.70 pence. Sterling retested the $1.6431 level hit on Monday, its lowest since July 30 before standing little changed on the day at $1.6473. That was far from the 9-1/2 month high of $1.7044 hit on August 5 as the dollar continued to hold gains posted in the wake of Friday's better-than-expected US jobs report. The pound also held close to a 13-year low of 50.9 pence hit on Monday versus the Australian dollar.
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