Sterling steadied from an earlier dip against the dollar on Monday after a second rating's agency downgraded Britain which further added to the currency's bleak outlook given the risk of weak growth data later this week. Fitch Ratings stripped the country of its triple-A credit rating on Friday, citing a weaker economic and fiscal outlook, and following in the footsteps of fellow agency Moody's.
Analysts said although the downgrade came as no great surprise to investors, given the recent fragile outlook for the British economy, it added to reasons to sell the pound. The initial estimate of gross domestic product data on Thursday could put further pressure on sterling, with many market players concerned it will show the economy contracted in the first quarter of 2013.
Sterling was flat on the day at $1.5232, retreating further from the April high of $1.5412. "The Fitch downgrade was no great surprise, but I think for sterling the data this week is key for it going forward," said Melinda Burgess, currency strategist at RBS.
The Reuters' consensus forecast is for the British economy to expand by 0.1 percent quarter-on-quarter, although forecasts range from 0.3 percent growth to 0.2 percent contraction for the first quarter this year. The euro was down 0.3 percent on the day against sterling at 85.42 pence. The single currency has been hurt by growing talk of a rate cut by the European Central Bank, alongside weak economic data and lingering concerns around Italy's political situation.
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