Currency traders kept the pressure on sterling on Monday at the start of a week packed full of the first round of hard national data on consumer and corporate reaction to June's vote for Britain to leave the European Union. After a steadier opening in London, the arrival of US investors saw the pound sink more than half a percent to trade weaker than 87 pence per euro for the first time in three years.
It also fell against a broadly weaker dollar, trading below $1.29 for the first time in a month, just half a cent off the lows hit in the fortnight after the shock June 23 vote for a Brexit. Data on Friday showed speculative positions against sterling and in favour of the greenback reaching their highest on record - pointing both to further sterling weakness but also to a risk that those positions at some stage get squeezed.
"(There is) no point over-thinking. Sterling is prone to short-covering but is also trending lower over time," Societe General strategist Kit Juckes said. Traders said there had been signs of some longer-term "real money" - market shorthand for major institutional players like pension and investment funds - selling the pound, despite the indications that bets against the currency look stretched. "We saw some real money sellers of it, but it is not clear who is doing the bulk of the selling and why," said Stephen Gallo, head of European FX strategy with Canada's BMO in London.
"Someone could make a lot of money if they sold it ahead of this data and the numbers were bad. (But) My models show fair value at $1.33 so it is going in the opposite direction from the model." The pound has been falling steadily since the Bank of England launched a new round of monetary easing 10 days ago. Yet that is a two-edged sword - on the one hand it should spur buying of UK government bonds and on other it has driven market interest rates for holding sterling lower. The 10-year gilt yield hit another record low on Monday after data last week showed the construction sector contracting ahead of the June referendum as well as pointing to weakness in Britain's housing market.
The first official readings of retail sales, inflation and jobs and wage data to fully reflect the period since the referendum are all due this week. "The retail sales number will probably be the most eagerly anticipated," Craig Erlam, an analyst with retail brokerage Oanda said in a morning note.
"Should consumer sentiment hold up over the next six months, assisted by the bold moves from the Bank of England, then the UK may be able to weather the early part of the storm and possibly avoid recession." Retail sales, due on Friday, are forecast to rise 4.2 percent year on year, according to Reuters' polling of economists.