Thursday, January 1, 2009
Sterling steadied versus the dollar on Monday as news of growing mortgage approvals eased concerns about a potentially sharp slowdown in the housing market.
Mortgage approvals -- seen as a forward looking indicator -- picked up from near record lows in January, according to data from the British Bankers' Association.
Coupled with much better-than-expected retail sales figures the previous week the data backed the view that the Bank of England would not need to cut rates aggressively to boost growth.
Bank of England policymaker Kate Barker said in an interview with a regional newspaper that a recession remains unlikely.
"The last few weeks' data has been pretty upbeat and the BBA lending as well was quite strong," said Peter Frank, currency strategist at Societe Generale.
"The market is no longer thinking that the Bank of England is falling behind the curve and modest rate cuts seem to be the way forward rather than anything too dramatic. Obviously sterling is beginning to gain ground on that."
He added that the relatively high level of speculative short bets on the pound -- totalling a net 12,157 contracts in the week to February 19 according to the latest data from the Commodity Futures Trading Commission -- also left the currency open to a correction higher.
By 3:19 p.m. the euro was down 0.2 percent 75.26 pence. The pound was steady at $1.9674.
However, there were some signs that not all is rosy with the economy.
Housing market research company Hometrack said house prices fell by 0.2 percent this month -- their fifth monthly fall. That pushed annual inflation down to a 22-month low of 1.4 percent from January's 2.3 percent.
"We expect sterling to remain under pressure over the medium term... Indeed, any further near-term gains into the $1.98/$1.99 area would be considered for re-establishing bearish strategies," BNP Paribas said in a research note.
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