Sterling slipped on Tuesday from a four-month peak hit in the previous session as upbeat US data and prospects that the Federal Reserve could signal a reduction in its stimulus programme supported the dollar. Any hint from Fed chairman Ben Bernanke on Wednesday about an early exit from money printing could push the dollar even further, although some analysts cautioned this might be short-lived if it resulted in volatility and a fall on stock markets.
US housing and inflation data meanwhile suggested the recovery there is gaining pace. The pound hit a more than two-week low against the euro, which rose after above-forecast German economic sentiment data. Sterling was down 0.8 percent at $1.5595, slipping from Monday's $1.5753 peak, its highest since February 11. Traders said stop-loss sell orders were triggered on the break below $1.5640, with support cited around the June 11 low of $1.5521.
It stayed stuck below strong chart resistance at $1.5696, the 200-day moving average, and the 55-week average at $1.5692. "The (sterling move) lower was mainly due to momentum building on the dollar side," said Chris Walker, FX strategist at Barclays Capital. "On the sterling side there are very few catalysts for this correction lower but ultimately fundamentals in the UK remain relatively weak and it is fairly straightforward to make a bearish case against the UK."
The euro was up 1.0 percent at 85.79 pence, having hit 85.84 pence, its strongest since May 30, breaking above its 100-day moving average at 85.467 pence. Stronger-than-forecast May inflation did little to help the pound and reduce the prospects of further monetary easing by the Bank of England under new Governor Mark Carney. Monetary stimulus usually hurts a currency by increasing its supply. Analysts said currencies were likely to be range bound ahead of Bernanke's news conference.