LONDON Sterling staged a modest recovery on Monday after its worst week in 10, as traders bought back the currency after it fell below $1.30 for the first time in a month on Friday.
The pound skidded more than 2 percent against the dollar last week after the Bank of England left the door open to a further cut in interest rates by the end of the year, and as investors worried that Britain's negotiations to leave the European Union could have a negative impact on the economy.
But having touched $1.2999 on Friday, sterling climbed 0.4 percent on Monday to trade at $1.3055.
Analysts said sterling still looked weak, however, and that its rebound was the result of the pyschologically important $1.30 having been reached rather than a news-driven move.
"This is all about levels, I think. Sterling dipped below $1.30 and with a big level like that you inevitably get people cashing in and going the other side of the price. I don't think it's any more complicated than that," said Bank of New York Mellon currency strategist Neil Mellor.
Having also hit a four-week low of 85.82 pence per euro at the end of last week, the British currency rebounded 0.2 percent to trade at 85.63 pence.
The BoE kept rates at record lows last week but signalled that it would cut them again before the end of the year. It cut rates to 0.25 percent in early August and relaunched an asset-purchase programme to cushion the economic blow from Brexit.
Traders said sterling's weakness accelerated late last week on a media report that UK finance minister Phillip Hammond was ready to give up access to the single market to achieve immigration restrictions during the Brexit negotiations.
"There are increasing forces within the government pressing for a hard exit, putting immigration ahead of EU market access," said Hans Redeker, head of currency strategy at Morgan Stanley.
"Things look increasingly messy and with the UK government not defining a clear position concerning its exit strategy, uncertainties will remain high. What matters for sterling is the medium-term investment outlook and here the outlook is negative."
A survey by Lloyds Bank showed on Monday that British companies scaled back their investment plans in the month after Britain voted to leave the European Union.
The latest data from Commodity Futures Trading Commission showed speculators had trimmed bets against the British pound in the week to Sept 13. [IMM/FX]
(Additional reporting by Anirban Nag; Editing by Gareth Jones)