Sterling stuck near six-month low as BoE rate cut bets and Brexit worries persist

Sterling hovered near a six-month low against the dollar on Monday as investors continued to bet on lower British interest rates and added to their short positions on the currency.

As major central banks around the world including the Fed shift towards monetary policy easing, investors are betting that the Bank of England will follow suit. Last week it fuelled investors' expectations of a 25 basis point cut over the next 12 months, hurting the pound. Uncertainty over Britain's departure from the European Union, as well as over who will become the new British prime minister and lead the country out of the bloc, added to sterling's weakness.

The pound was flat at $1.2523, not far from the $1.2481 low reached on Friday. Against the euro, sterling was little changed at 89.610 pence, still below the key psychological level of 90. Latest data from the Commodity Futures Trading Commission reflected the pessimism over the British currency's outlook, with speculators extending their short positions in the pound to $4.68 billion, the highest level since early February.

"What's happening in the dollar will drive cable (sterling-dollar) for now," said Thu Lan Nguyen, an analyst at Commerzbank. "Brexit as a driver will become more relevant as Oct. 31 deadline approaches." Traders will be watching UK gross domestic product data on Wednesday, though its influence on the pound could be negligible given that the BoE focuses on more forward-looking data, said Nguyen.

A Reuters poll of economists forecasts the British economy will have grown 0.1% in the three months to end-May, down from 0.3% in the three months to end-April.

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