RTRS:Sterling falls versus dollar, near 3.5 year peak versus euro
(Reuters) - Sterling hit a five-week low against the dollar on Thursday after Federal Reserve minutes dampened expectations of further U.S. monetary easing in the near term, boosting broad demand for the greenback.
The pound also retreated slightly against the euro but held within sight of a 3-1/2 year high hit on Wednesday as concerns that policymakers were struggling to make progress in tackling the euro zone debt crisis weighed on the single currency.
Sterling fell to $1.5448 versus the dollar, its lowest level since early June, with traders citing options expiries at $1.55.
The euro edged up 0.1 percent against the pound to 78.99 pence, just above the previous day's low of 78.71 pence.
While still considered by many to be a safe haven relative to the euro zone, Britain's economy is still in recession and the growth outlook shaky.
"The prognosis for the UK is not a very good one, and only thing saving the pound so far is it's not the euro," said Alan Wilde, director of fixed income and currency at Baring Asset Management.
"Sterling has been rising as a function of euro weakness but sterling/dollar is still too high at these levels. It's not a raging sell at these levels, but is probably a sell on a medium-term basis."
Wilde said some investors may be unnerved by signs of tension within Britain's ruling coalition at a time when the government is trying to push through harsh austerity measures to reduce the budget deficit.
Sterling looked set to stay under pressure against the dollar as investors sold perceived riskier currencies after June minutes from the Federal Reserve published late on Wednesday showed the U.S. economy would have to worsen further for the central bank to launch another round of quantitative easing.
Asset buying from the Fed tends to weigh on the greenback against other currencies as it increases the supply of dollars in the system.
Morgan Stanley strategists said the pound would be vulnerable to moves in broad risk appetite and the move through $1.5455 opened the way for a move towards the bottom of the pound's long-term range at $1.5235.
"With little economic data from the UK over the next few days, we look for sterling to trade in line with risk and euro area news," the strategists wrote in a note.
The pound also came under pressure against a resurgent Japanese yen, falling to a one-month low of 122.48 yen after the Bank of Japan refrained from announcing more easing but tweaked its asset buying and lending programme.
