Sterling fell towards a 15-month trough against the dollar on Monday before a Federal Reserve meeting later in the week that could signal US interest rates will be increased before those in Britain. Sterling slipped 0.7 percent to $1.5602, not far from the 15-month low of $1.5545 hit last week. Against the euro, it fell 0.2 percent to 79.61 pence.
Data showing asking prices for British homes posting their biggest monthly fall on record in December did little to change the view that UK rates will not be hiked until the end of next year, or even in 2016. Until the summer, investors were betting that the Bank or England would be the first major central bank to raise rates from their historic near-zero levels, driving sterling to a six-year high against the dollar at almost $1.72 in July.
But after an uncomfortably close referendum on Scottish independence, as well as a run of softer data, the pound has since fallen almost 10 percent as rate hike bets have been pushed back. In contrast, the US dollar has rallied as the economy has roared back and as rate hike expectations have been brought forward to mid-2015. The Fed will meet on Wednesday to discuss policy and will release a statement that investors will scrutinise for confirmation of their expectations.
"The focus is now very much on Wednesday - we're talking about the FOMC (Federal Open Market Committee) moving forward (in tightening monetary policy), while on the other hand you've got the UK scaling back their rate hike expectations," said Kathleen Brooks, research director at Forex.com. Aside from the Fed, investors will also be looking at data from Britain for fresh clues on the robustness of the British recovery. "We are heading into an eventful week in the pound with inflation, jobs data and retail sales due on Tuesday, Wednesday and Thursday respectively. Soft economic read is a risk for sterling bulls," said Ipek Ozkardeskaya, market analyst at Swissquote. Gilt prices fell moderately, tracking German and US government bond prices lower after oil prices steadied above a new five-year low. At 1530 GMT, the 10-year gilt yield was up 2.5 basis points on the day at 1.83 percent.
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