Sterling fell to a four-month low against the dollar on Wednesday as worries about Spain's banking sector problems and its rising borrowing costs pushed investors into the safety of the US currency. The pound lost 0.5 percent on the day to $1.5565, breaking below a reported options barrier at $1.5600 to mark its lowest since late January.
However, the pound was expected to remain well supported against the euro as investors seek alternatives to the troubled common currency. "Sterling is holding up better than the euro but we still see it at lower levels against the dollar," said Richard Driver, analyst at Caxton FX, adding it could head down to $1.5350 by the middle of next month.
Concerns are growing that Spain may be forced to seek an international bailout. Ten-year Spanish bond yields are trading above 6.5 percent, dangerously close to the 7 percent level beyond which borrowing costs are deemed unsustainable over the long-term. The euro lost ground against the pound, easing to 79.80 pence, having earlier touched a two-week low of 79.735 pence. Further selling in the common currency could see it retesting the trough of 79.505 hit earlier this month, its lowest level since November 2008. UK data on Wednesday showed Britain's property market picking up in April, although broader lending figures suggested the overall economy was sluggish.
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