BR:Sterling falls versus dollar, still vulnerable to BoE policy
LONDON: Sterling slipped back against the dollar on Thursday as the impact of Bank of England minutes waned and investors refocused on the likelihood that the US will still withdraw stimulus before the UK.
Sterling was down 0.3 percent against the dollar at $1.5163, retreating from the two-week high of $1.5270 hit on Wednesday. Against the pound, the euro was up 0.2 percent at 86.39 pence.
The pound could weaken further if UK retail sales figures due out at 0830 GMT come in below the consensus.
Sterling rallied on Wednesday after minutes from a BoE meeting surprised investors when it showed all nine policymakers voted against expanding its bond-buying programme, an unexpected change from the previous meeting's 6-3 split and wrongfooting investors who had built large bets against sterling in recent weeks.
Better-than-expected UK jobs numbers also helped sterling as speculators and investors who had bet against the pound before the BoE minutes were released bought the currency back.
But sellers quickly emerged once the pound climbed towards $1.53 levels and analysts said it could now test the $1.50 mark and possible dip below it.
"The votes were a bit unexpected, but it is simply a change on emphasis. Rather than QE the BoE is likely going to move more towards forwards guidance. I don't see what was said yesterday as hawkish," said Saeed Amen, FX strategist at Nomura.
"I remain long dollar and would sell into any rallies in sterling," he said, adding that if sterling stayed below the 20-day moving average of around $1.5174 it would be a bearish signal.
The dollar rose after Fed chief Ben Bernanke's comments on Wednesday kept alive chances that the Fed would be the first among major central banks to move away from its ultra-loose policy. Bernanke, however, said this was still dependent on how the US economy fares.
One reason for investors to stay cautious on the pound is the expectation that the BoE, when it issues a forward guidance in its Quarterly Inflation Report early next month, will pledge to keep interest rates low until a more sustainable recovery is in place.
Despite the yield gap between 10-year US Treasuries US10YT=RR and UK gilts GB10YT=RR narrowing on Wednesday, which hurt the dollar, the spread was still near its highest since late 2006, thus signalling further dollar strength.
"Medium term, we remain bearish sterling/dollar and continue to look for a decline below $1.5030/10 to target the 1.4815 lows seen earlier in the month. Longer term, we maintain our 1.41 year-end forecast," analysts at Morgan Stanley said.
