Pound hits 8 1/2-month low vs dollar

Negative sterling sentiment was highlighted by the latest data from the Commodity Futures Trading Commission, which showed currency speculators increased their bets that sterling will depreciate, taking net sterling short positions to 33,968 last week from 27,153 the week before.

While investors keep an eye on developments in the euro zone this week, attention will also be on the Bank of England's quarterly Inflation Report on Wednesday, when the central bank is expected to cut its 2010 growth forecast while increasing its consumer price outlook.

The report follows the central bank's decision last week not to extend its 200 billion pound quantitative easing plan. Investors were also awaiting comments from BoE Governor Mervyn King for any hints on the outlook for monetary policy.

(Reporting by Naomi Tajitsu, editing by Nigel Stephenson)