Sterling fell broadly on Monday after data showed UK manufacturing activity shrank in July for the first time in two years, a reminder of the difficulties the UK economy faces which are likely to keep the currency on the ropes. Traders said the pound came under further pressure in afternoon dealing as safe-haven currencies such as the Swiss franc and the yen outperformed in thin trade.
Investors are now almost fully pricing in a quarter percentage point rate hike in December 2012, whereas late last month they expected a rate rise in November 2012. Sterling fell to as low as $1.6284 against the dollar in afternoon trade, having earlier hit a two-month high of $1.6477 when riskier assets staged a relief rally after US President Barack Obama said a deal to raise the US borrowing limit had been agreed.
Sterling hit a fresh record low against the franc around 1.2589 francs and was down 1.6 percent at 124.77 yen, a four-month low.
Traders said pivotal support for sterling versus the dollar was in the $1.6260 zone, a level, which provided a cushion on several occasions in July. Against the euro, sterling eased a touch despite disappointing euro zone manufacturing data. The euro was up 0.1 percent at 87.63 pence, although investors remained wary about the single currency given lingering concerns about peripheral sovereign debt. Traders cited stops above 88.00 pence and corporate demand on dips below 87.50 pence.