ET:Sterling hits 3-week low vs dollar as Greece weighs
LONDON: Sterling hit a three-week low against the dollar on Monday as political deadlock in Greece curbed investor appetite for risk and fed safe-haven demand for the greenback.
Against the euro the pound traded just below 3-1/2 year highs reached last week. Analysts expect sterling to make further gains as a safe bet relative to the common currency, which struggled on fears Greece may default if its politicians fail to form a government in time to negotiate the country's next aid tranche.
The pound fell 0.1 percent against the dollar to $1.6051.
The euro slipped 0.3 percent to 80.16 pence, hovering above a 3-1/2-year low of 79.95 pence hit last week.
"Sterling... benefits from the fact that there is no immediate crisis (in the UK). With the euro continuing to be under pressure and everyone long of dollars, it will continue to benefit," said Mark Oswald FX and rates strategist at Monument Securities.
A troubled political climate in the euro zone could extend the euro's slide against the pound ahead of a meeting on Monday evening between the Greek president Karolos Papoulias and the country's political leaders.
The next focus for investors will be the Bank of England's quarterly inflation report on Wednesday, in which the central bank will give its latest UK growth and inflation forecasts.
"The (BoE) report is going to say stagflation rules. The market may be underestimating where the bank will be forecasting CPI at the end of this year, and it will clearly revise its GDP forecasts down," Oswald said.
Some analysts expect the BoE to take a more dovish stance on the economy. The central bank is expected to maintain loose monetary policy and low interest rates for some time given euro zone concerns and recession, although policymakers were also likely to be focused on persistently high inflation.
"After last week's expected pause in quantitative easing, we look to the inflation report for signs that the BoE does indeed see inflation creeping up," Morgan Stanley analysts said in a note.
"While a large upwards move could see a large shift in sterling, a moderate increase in inflation expectations is likely priced in." (Editing by Hugh Lawson)
