LONDON  - Sterling hit a 2½ year low against the dollar on Monday as hedge funds and long-term investors sold, seeing the pound as susceptible to more weakness given contrasting outlooks for the British and US economies.

While strong US jobs numbers late last week bolstered speculation that the Federal Reserve may curtail its asset purchase programme later this year, Britain may be set to enter its third recession in four years. That is likely to drive the Bank of England to print more money to support the economy.

The pound has been one of the worst performing major currencies in 2013, falling 8.5 per cent against the dollar and 7 per cent against the euro.

“Sterling is going to continue to be the underperformer within the G10 alongside the yen. We are looking for cable (sterling/dollar) to move lower to the $1.47 level in the next week,” said Ian Stannard, head of European FX strategy at Morgan Stanley.

“We have industrial production data coming up ... given the weakness we have seen in the manufacturing PMIs, if that comes in weak as well that could put sterling under further pressure.”  UK industrial and manufacturing data for January due on Tuesday is expected to show little or no monthly growth and could compound concerns Britain is lurching towards a recession.

Sterling shed 0.3 per cent to $1.4868 - its lowest since mid-2010 - with some bids from Asian central banks cited at $1.4860/70 that could check losses for now. The pound fell below $1.49 for the first time in more than 2½ years on Friday on news that US non-farm payrolls surged by 236,000 last month, pushing the jobless rate down to 7.7 per cent - the lowest since December 2008.

The spreads between two-year US government bonds yields and their British counterparts are moving in favour of US debt, underpinning dollar demand. The pound also lost ground against the euro. The euro was up 0.3 per cent against sterling at 87.34 pence, though some said the euro’s gains are likely to be curtailed by lingering concerns about Italy.

Fitch lowered Italy’s sovereign rating by one notch to BBB-plus, with a negative outlook, due to political uncertainty after inconclusive elections. Analysts said investors will be more comfortable in expressing a bearish view on the British economy by selling the pound against the dollar rather than the euro.

Speculation is mounting that Chancellor George Osborne may announce a review of the Bank of England’s remit when he presents his budget on March 20 and give it more leeway on inflation targeting.

The Chancellor could also consider adding an employment target to the BoE’s objectives as the government tries to put in place aggressive measures to kickstart the economy.

“If Osborne announces such a review in his annual Budget speech, sterling will stay under pressure as investors will anticipate further easing in future,” said Mansoor Mohiuddin, chief currency strategist at UBS.

The loss of one of Britain’s prized triple-A credit ratings after a Moody’s downgrade has also unnerved investors and stoked criticism of the government’s austerity measures which some say are counterproductive.

Speculators increased their bets against the pound, with net short positions rising in the latest week to March 5, data from the Commodity Futures Trading Commission showed on Friday.