LONDON: The pound retreated from a one-week high against the dollar on Monday as perceived riskier currencies and assets came under pressure with a dour UK economic outlook likely to keep it subdued in the near term. The dollar index was higher with a surprise drop in the U.S. unemployment rate on Friday soothing concerns about the economy. It drove investors to reassess the potential scale and duration of the latest round of the quantitative easing (QE3) by the Federal Reserve and helped the dollar. In contrast, activity data released last week suggested the UK economy grew only marginally in the third quarter with the construction sector still contracting and the dominant services sector growing much more slowly than anticipated. Making an economic recovery even more tougher, Chancellor George Osborne will on Monday confirm plans to cut welfare spending with the fiscal austerity programme likely to extend further. That would pile pressure on the Bank of England to ease monetary policy perhaps as early as next month. "Sterling has been trading with a softer bias and has underperformed the euro in the past few sessions," said Michael Derks, chief strategist, at FXPro. "This trend is likely to stay in place in the near term. More fiscal austerity means the Bank of England will have to weigh up measures for additional quantitative easing." More QE usually has an adverse impact on a currency as it increases the supply. Sterling was down 0.35 percent at $1.6080 and more losses could see it target $1.6065, its lowest level in almost a month, with stop-loss orders cited below $1.6030. It has retreated from a one-week high of $1.6218 hit on Friday after riskier currencies got a lift from the U.S. jobs report. But those gains evaporated as U.S. bond yields rose with investors reassessing the need for more easing by the Fed in the near term. QE by the Fed has in the past boosted demand for riskier currencies and assets. The euro eased 0.2 percent to 80.65 pence, taking a breather after it posted its biggest weekly gain since late February. The euro faces near term resistance at the mid-September peak of 81.14 pence, with focus squarely on Spain. The country is expected to apply for a financial bailout soon which will pave the way for the European Central Bank to step in and buy its government bonds to lower borrowing costs. That is expected to give a boost to the euro against most currencies. "An easing of safe haven flows from the euro-zone debt crisis may leave the pound vulnerable to the downside in the near-term exposing it to still weak UK fundamentals," Bank of Tokyo Mitsubishi said in a morning note.

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