Sterling fell against a firmer dollar on Tuesday, trading near recent lows after strong US economic data that supported the case for the Federal Reserve to scale back its stimulus programme. The pound was down 0.3 percent at $1.5053 after data showed US consumer confidence strengthened in May to its highest in more than five years.
That boosted the dollar and pushed the pound closer to last week's two-and-a-half month low of $1.5014. Strong chart support was expected at $1.5000 with traders reporting bids above that level. Also weighing on sterling were concerns that incoming Bank of England governor Mark Carney, who takes up his post in July, may call for further stimulus to boost the flagging British economy, especially after poor UK retail sales data last week.
By contrast, expectations the US Federal Reserve could taper asset buying soon have lifted the dollar. Analysts at Morgan Stanley said they expected sterling to re-test the $1.5010/1.5000 area because "the broader economic picture in the UK remains weak". A break below $1.50 would pave the way for a drop towards the March low of $1.4832, they said.
But other analysts pointed to data showing a rise in speculators' short positions in sterling in the week to May 21, which allowed the potential for a short-covering rally. "The market is waiting for further news, which won't come until the PMI surveys next week (for an indication of UK economic activity in May)," said Richard Driver, analyst at Caxton FX. The euro edged down 0.1 percent to 85.49 pence but was still near last week's five-week high of 85.90 pence.