ET:Sterling at 1-month low vs dollar on Greece, BoE
LONDON: Sterling hit a one-month low against the dollar on Thursday as concerns about Greece ditching the euro boosted demand for the safe-haven U.S. currency, with investors also wary of the pound after the Bank of England cut UK growth forecasts.
The pound looked likely to edge higher against the euro, however, and could test a 3-1/2 year high if the political turmoil in Greece further fuels demand for alternatives to the common currency.
Greece faces fresh elections on June 17 that could see parties opposed to austerity take power and, in a further blow to investor confidence, the European Central Bank halted liquidity operations with some Greek banks because they are severely undercapitalised.
The pound dipped around 0.1 percent against the dollar to $1.5887, its lowest level since mid-April. Support was seen around $1.5827 where sterling's 100- and 200-day moving averages converged, while traders reported an options expiry at $1.5930.
The euro rose 0.2 percent to 80.01 pence but remained within sight of the 3-1/2 year trough of 79.50 pence hit on Wednesday.
"Sterling is going to come under pressure against the dollar, which will continue to be the ultimate safe haven in the current environment," said Ian Stannard, European head of FX strategy at Morgan Stanley.
"Euro/sterling will see more of an edge lower than a sharp move, but overall euro weakness will remain very much intact."
Many analysts said sterling would continue to fall versus the dollar after the BoE's Inflation Report on Wednesday painted a gloomy outlook for the UK economy and left the door open for another round of asset buying.
Policymakers warned of risks to the UK from the euro zone crisis and downgraded medium-term inflation forecasts, which could be used to justify printing extra money to buy bonds.
"Overall the report reinforces our view that the asset programme will likely be resumed by the summer. In these circumstances, the pound should begin to trade on a softer footing," Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi said in a note.
