Sterling fell to its lowest in over six weeks versus a firmer dollar on Monday as increased optimism over the US economy boosted the greenback and triggered stop-loss sell orders in the pound, adding weight to a bearish technical outlook. An absence of UK data on Monday meant sterling's direction was driven largely by external factors. The dollar index hit its highest in over six weeks after Friday's US jobs data was seen reducing the chance of more monetary stimulus from the Federal Reserve.
Sterling fell to $1.5603 against the dollar, its lowest since January 25, before recovering slightly to trade at $1.5616 with losses of around 0.4 percent on the day. Traders said stop-loss sell orders were hit on the break of the February low of $1.5644, but reported demand for sterling on the approach to $1.5600.
The euro rose around 0.6 percent for the day versus sterling to 84.12 pence, its highest level since the end of February. Some market players said they saw this level as a good opportunity to sell the euro however, given worries over contagion from the euro zone debt crisis.
"This is a dollar move rather than a sterling move. We're entering a new regime where better US data is dollar positive and structurally it can keep outperforming," said Geoff Kendrick, FX strategist at Nomura. Latest IMM data showed speculators have increased short positions in the pound in favour of the dollar.
Technical analysts also said sterling's outlook was becoming increasingly bearish, having broken below support from the 55- and 50-day moving averages around $1.5669 and $1.5684. The economic outlook in the UK remained uncertain, with soft industrial production data on Friday adding to investors' reluctance to hold sterling.