Sterling fell against the dollar on Wednesday, dented by concerns about a fragile UK economy while rising risk aversion due to worries about Japan's nuclear crisis helped the dollar. The pound held above the $1.60 level, but analysts saw a risk of further downside, particularly if risks to the economic outlook prompt investors to further scale back expectations for interest rates to rise in the coming months.
Short sterling futures rallied as investors pushed back expectations of monetary tightening from the Bank of England following mixed economic data and uncertainty about the global outlook in the wake of the Japan earthquake. Sterling was down 0.35 percent against the dollar at $1.6015, though it held above a low of $1.5978 hit on Tuesday, however. The pound gained against a weaker euro, which was down 0.1 percent at 86.98 pence after European Central Bank policymaker Christian Noyer cast doubt on whether eurozone rates would rise next month, saying the bank would assess the impact of events in Japan.
The euro was also dented by a Moody's downgrade of Portugal's credit rating late on Tuesday, after rising to a four-month high of 87.10 pence on Tuesday. The pound was well below its one-year high of $1.6344 hit earlier in the month when UK rate expectations were rising. Technical analysts highlighted support at $1.5963, the pound's February low and in the same area, the 38.2 percent retracement of its December to March rally.