Investing.com - The pound trimmed back losses against the dollar on Tuesday, recovering from session lows, but concerns over the prospect of Scottish independence looked likely to keep volatility in sterling.
GBP/USD was last down 0.11% to 1.6213 after falling to lows of 1.6162 earlier in the session.
Cable was likely to find support at the 1.61 level and resistance at around 1.6250.
Sterling remained under pressure as uncertainty over the outcome of Thursday’s referendum on Scottish independence continued to dampen investor demand for the pound.
The latest opinion polls on the Scottish referendum have indicated that the outcome of the vote is too close to call.
Concerns over the prospect of a yes vote pressured sterling to 14-month lows against the dollar last week after polls indicated that support for the yes vote had edged into the lead for the first time since the start of the pro-independence campaign.
Uncertainty over what currency an independent Scotland would use, as well as concerns over how much of the U.K. national debt it would take on have rattled financial markets.
Bank of England Governor Mark Carney warned last week that a currency union between an independent Scotland and the rest of the U.K. would be “incompatible with sovereignty”.
Earlier Tuesday, the Office for National Statistics reported that the annual rate of U.K. consumer price inflation slowed to 1.5% last month from 1.6% in July, in line with forecasts.
The reading matched the five year low seen in May. The slowdown in inflation was mainly due to lower prices for fuel, food and non-alcoholic drinks the ONS said.
Consumer prices inched up 0.4% in August, in line with forecasts.
While the rate of inflation fell, a separate report showed that U.K. house prices rose at the fastest pace in seven years in July.
Average U.K. house prices jumped 11.7% in the year to July, the ONS said, and were up 19.1% in London on a year-over-year basis.
Demand for the dollar continued to remain supported amid heightened expectations for an early hike in U.S. interest rates, as investors anticipated the outcome of Wednesday’s Federal Reserve policy meeting.
The Fed was expected to cut its asset purchase program by another $10 billion which would keep it on track for winding up the program in October, and to start raising interest rates sometime in mid-2015.
In the U.S., data on Tuesday showed that producer prices were flat in August, but were up 1.8% on a year-over-year basis, after a 1.7% increase in July.
Elsewhere, sterling was also slightly lower against the euro, with EUR/GBP up 0.12% to 0.7981.
In the euro zone, a report on Tuesday showed that German economic sentiment continued to deteriorate this month, falling to the lowest level since December 2012.
The ZEW index of German economic sentiment fell to 6.9 this month, down from 8.6 in August amid uncertainty over Germany’s economic outlook as a result of sanctions against Russia, and concerns over the subdued outlook for the euro zone.