Sterling steady, UK data provides solid support

LONDON: Sterling was steady against the dollar and the euro on Tuesday, supported by more evidence of a recovery in Britain’s economy and housing market, which kept alive expectations for earlier-than-scheduled monetary tightening.

A survey by the Royal Institution of Chartered Surveyors showed British house prices rose at their fastest rate in 11 years in September and sales hit a four-year high.

While another survey showed retail sales growth slowed last month, British firms also reported broad-based growth in business and confidence in the third quarter, according to a British Chambers of Commerce survey.

Improving economic data bodes well for sterling, which has drawn bids at lower levels from Asian central banks.

Sterling was flat at $1.6075, holding above near-term support at $1.6006 struck on Oct 4. Traders said as long as sterling remained above that low it could move towards a nine-month high of $1.6260 hit on Oct 1. At that peak, the pound had gained more than seven per cent since early August.

The pound was also steady against the euro, which was at 84.40 pence, off a one-month peak of 84.755 pence touched on Friday.

“The UK data suggests that there is a bit of a battle going on between the Bank of England which wants to keep rates low and the markets which are pricing chances of tighter policy much earlier than what has been flagged,” said Marshall Gittler, head of FX strategy at IronFX.

“Fundamentally and technically, things are looking good for sterling. The US problems are leading investors to seek safety in Europe and sterling is also a beneficiary.”

Recent British data has prompted investors to start pricing in a possible Bank of England (BoE) rate hike by the first half of 2015 – well before the central bank’s late-2016 timeframe when it expects unemployment to fall to the seven per cent level.

The dollar index which measures the US currency’s value against a basket of currencies was trading not far from an eight-month low. It was lifted slightly by signs that US lawmakers could come to an agreement to avoid a default on US debt. However, it is still vulnerable to losses if there is no breakthrough.

The dollar is also being dampened by expectations that concerns about the fiscal impasse in the United States will prompt the Federal Reserve to delay withdrawing stimulus. In contrast, in the UK signs of a sustained pick up are likely to underpin the pound.

The Bank of England meets this week but is not expected to spring any surprises such as another round of asset purchases given the uptick in economic activity.