Sterling hits one-month low with growth data in focus

© Reuters. FILE PHOTO: UK pound coins plunge into water coloured with the European Union flag colours in this illustration picture, October 26, 2017. Picture taken October 26, 2017. REUTERS/Dado Ruvic

(Reuters) - Sterling hit a one-month low against the dollar on Monday, at the start of a week where traders are focussing on British growth data and remarks from Bank of England policy makers about the pace of interest rate hikes.

The pound weakened 0.2% to trade at $1.2031, extending declines after losing 2.8% against the greenback last week - its worst such decline in more than four months - when blowout U.S. jobs data sent the greenback higher against almost all currencies.

Against a weaker euro, the British currency edged up, but stayed close to its softest against the single currency since late September.

"Growth data and BoE speakers will be the two domestic inputs for the pound this week, although global risk sentiment, geopolitical developments and a supported dollar may work against any positive domestic news," said Francesco Pesole, FX strategists at ING.

"Cable (sterling/dollar) may heavily test 1.2000 soon."

British economic growth numbers will be released on Friday and are expected to show the economy likely avoided a second straight quarter of contraction - a commonly used definition of a recession.

Risk sentiment globally was weak as investors unwound positions that central banks may pause interest rate hikes soon. Trader expectation for a 25 basis points hike from the Federal Reserve rose 95% after Friday's jobs data.

On the geopolitical front, the U.S. military said on Sunday it was searching for remnants of the suspected Chinese surveillance balloon it shot down a day earlier, deepening worries about strained ties between the world's two largest economies.

Closer to home, BoE rate-setter Catherine Mann on Monday backed further increases in interest rates and warned that pausing, as some of her colleagues advocate, risked a confusing "policy boogie".

The central bank last week dropped its pledge to "respond forcefully" to signs of further inflationary pressure, adding that inflation had probably peaked, alongside a 50 basis point rate increase.

"We have argued that this policy stance puts more pressure on the currency," said FX strategists at Goldman Sachs (NYSE:GS) in a note.

Comments from Huw Pill, regarded as a centrist figure on the monetary policy committee, are due this week and Governor Andrew Bailey will also testify before Parliament.