LONDON: Sterling hit a one-month low against the dollar on Tuesday, stung by comments from a Bank of England policymaker that Britain faces the risk of sliding into recession. Traders said a fall in European shares, implying a decline in investor appetite for risk, was adding to selling pressure on the pound as it is considered a higher-risk currency. In an interview with a UK newspaper, Martin Weale, the newest member of the BoE's Monetary Policy Committee, was also quoted as saying the central bank's growth forecast for this year and next may be too optimistic. His comment drove the pound down nearly 1 percent on the day against the dollar to $1.5373, its weakest since late July. Gilt prices rallied, pushing futures to a contract high and the 10-year yield close to an all-time low. The BoE is expected to keep interest rates at a record low 0.5 percent well into 2011, and the central bank has said it remains ready to add more stimulus to the economy if necessary. Analysts said sterling would be vulnerable in the futures to dovish comments similar to Weale's. "Weale's comments were not too surprising, but it helped produce some weakness in sterling given overall dollar strength," said Steve Barrow, head of G10 currency research at Standard Bank. "At the moment, the doves have the upper hand." By 0935 GMT, sterling traded at $1.5405, down 0.7 percent on the day. A 1.1 percent slide in UK shares added to selling pressure on the pound, while traders cited selling by eastern European names. "Whilst stock markets stay soft the FX market will stay risk-averse and I think around $1.5500 will cap the pound for the moment," a London trader said. Sterling extended losses on Tuesday after it broke under its 200-day moving average at $1.5469. A close below that level would open the door to more losses, technical analysts said. They added that sterling's next support level lay at $1.5322, the 38.2 percent retracement of the pound's rally from May to early August, when it hit a six-month high near $1.60. Losses against the dollar helped push sterling lower against the euro, which rose more than half a percent to the day's high 82.12 pence, pulling away from 81.43 pence hit on Monday, its weakest in nearly eight weeks. Technical analysts at Commerzbank said the euro has not sustained a break below 81.67 pence -- the 78.6 percent Fibonacci retracement of its June/July rally. But they added the euro's outlook remains dim and that the near-term target remains 80.67 pence, a low hit in June. Sterling fell sharply against the yen , hitting a three-month low of 129.52 yen. The Japanese currency rallied across the board after comments by Japan's finance minister stoked speculation the authorities would not step in to curb yen strength for now.

Source