Sterling inched up on Wednesday, as sovereign investors bought the pound after three straight days of losses had pushed it to a one-month low against the dollar. Gains were expected to be temporary as a weak UK economy and the prospect of even more fiscal tightening pile pressure on the Bank of England to print more cash under its quantitative easing programme next month pile pressure on the currency.
Sterling was marginally higher on the day at $1.6015, having fallen to $1.5975 on Tuesday, its weakest since September 10. Traders cited stop-loss orders at $1.6030 while support was at around $1.5960, the 38.2 percent retracement of sterling's rally from its low in July to its high of $1.6310 on September 21.
"We will prefer to play sterling/dollar for the downside," said Geoffrey Yu, currency strategist at UBS. "The fiscal and monetary fundamentals suggest the pound will stay under pressure even if there is an economic recovery." Against the euro, sterling was flat on the day. The single currency was at 80.52 pence, off a three-week high of 81.00 reached on Monday. The single currency faces strong chart resistance at the mid-September peak of 81.14 pence and the 200-day moving average at 81.18 pence.
Traders cited talk of demand for sterling against the euro by a UK corporate earlier in the session and which offered support to the pound. The International Monetary Fund slashed its forecasts this week to show the UK economy will shrink overall this year.
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