The Bank of England was also in focus as it is due to end its emergency buying programme launched last month to ease turmoil in the government bond market
Sterling slid against the dollar on Monday after the greenback was boosted by strong U.S. labour market data from Friday reinforcing bets the Federal Reserve will keep raising rates aggressively.
The Bank of England was also in focus as, at the end of this week, it is due to end its emergency buying programme launched last month to ease turmoil in the government bond market.
The central bank on Monday moved to ease concerns by announcing a doubling of the maximum size of its planned Monday debt buy-back, and launching a temporary expanded collateral repo facility to help banks ease liquidity pressures facing client funds caught up in turmoil which threatened pension funds.
Simon Harvey, head of FX analysis at Monex Europe said: (The latter) is one to note as it should backstop liquidity conditions beyond the next meeting. We think this could be seen as the Bank setting out the foundations for a big interest rate announcement in November, one that could cause some market dysfunction in the absence of such measures.
The pound dropped to a 10 day low of $1.1027 and was last 0.4% lower against the dollar at $1.1049. It was flat against the euro, which was also being pressured by the strong dollar.
The British currency has had a volatile few weeks, falling to a record low of $1.0327 in late September, after markets were roiled by a series of unfunded tax cuts announced by the British government, before recovering as high as $1.1028 last week.
The pound can weaken further against the dollar this week for two reasons said Carol Kong, currency strategist at Commonwealth bank of Australia.
First, we expect the USD to lift because US inflation can reinforce that the FOMC will not pivot on rate rises soon, she said. Second, domestic data will reinforce that the UK economy is slowing.
She also noted there was little technical support for the dollar until $1.0702.