Sterling fell to a five-month low against the dollar on Monday, and struck a three-month trough versus the yen, as concerns that Italy may be the next country to be engulfed by the eurozone debt crisis prompted investors to seek safe-haven currencies.
The pound dropped sharply as stops were triggered in the pound-yen pair, although buying by a UK clearer helped it climb from lows. With consumer price data on Tuesday likely to bring inflationary pressures back to the fore, losses in sterling are likely to be checked for now at $1.5881 - the 61.8 percent retracement of the pound's rally from a low of $1.5345 on December 28 to its Apr. 28 high of $1.6747.
Still, the overall outlook for sterling remained bearish as the Bank of England is unlikely to raise interest rates in coming months and worries about eurozone debt and a global slowdown drive investors to seek safe-haven currencies like the yen, the Swiss franc and the US dollar.
Sterling was down 1 percent on the day at $1.5900, having fallen past support at $1.5912 - the low struck on June 28 and a level where there was plenty of bids from Asian central banks and Middle East investors. "A close below $1.5900 is very negative for sterling," said a London-based spot trader. The pound fell to a three-month low against the yen of 127.80 yen, hurt by a bout of stop-loss selling as it fell past 128.15 yen. The euro was down 0.6 percent at 88.24 pence, having fallen to a low of 87.96 pence, its weakest since late June.