Sterling slipped against the dollar on Friday on concerns over potential political tensions and how the new government would tackle Britain's massive debt. Investors were also paring riskier assets on concerns about eurozone debt problems.
"Although fiscal tightening will ensure stability in the long term, it initially weighs on growth potential, and this continues to drive investors' sentiment," said Geoffrey Yu, currency strategist at UBS. Traders noted significant interest in downside options from hedge funds, adding to pressure on the pound. By 1350 GMT, sterling was down 0.2 percent at $1.4567, but off the day's low of $1.4496 as traders took profits. It had hit a one-year low of $1.4475 last Friday. Technical analysts said sterling remained on a downtrend after closing below $1.48 on Thursday, although open interest suggested it was an already crowded trade.
Initial concerns about the political outlook cleared after a coalition government was formed on Tuesday following an inconclusive election last week, pushing the pound above $1.50. "Tensions within the coalition government will keep sterling jittery," said Adam Cole, global head of FX strategy at RBC Capital Markets. The euro was down 0.4 percent at 85.34 pence.
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