London - Sterling held steady against the dollar on Friday, recovering from recent lows as upbeat UK economic data kept alive chances of an interest rate hike sooner than the Bank of England has anticipated.
The pound was supported by still elevated bond yields after Bank of England chief Mark Carney in a speech on Wednesday showed little concern about their impact on the economy.
UK mortgage approvals hit a five-year high in July, data showed, while consumer confidence in August soared to a near four-year high, further evidence that an economic recovery was gaining pace.
Sterling held steady at $1.5505, inching away from a two-week low of $1.5427, hit earlier this week. It was up around 2 percent against the dollar on the month.
The euro was up 0.1 percent versus the pound at 85.32 pence, but still not far from the day's trough of 85.2 pence which was its lowest since August 21.
“The numbers add to the overall picture that economic data in the UK continues to be robust and it is difficult to be negative on sterling,” said Nawaz Ali, UK market analyst at Western Union Business Solutions.
“The overall picture is still dependent on monetary policy... markets were positioned for a more aggressive communication strategy from Carney and we didn't get that so, as a result, you are seeing some underlying support for sterling at current levels.”
Investors had anticipated that Carney, in a speech on Wednesday, would try to talk down the rise in UK money market rates following a run of strong data. But his speech fell short of those who had geared up for a more aggressive bid to dampen expectations of monetary tightening.
Carney earlier this month issued “forward guidance” on monetary policy, saying interest rates would stay at a record low 0.5 percent until unemployment fell to 7 percent - something he said could take three years.
However, in light of the strong domestic data, investors are not convinced it would take that long and expect the BoE may have to hike rates much earlier than it has flagged.
Sterling overnight interbank average rates were still pricing in the chance of a first rate rise in around two years' time, unchanged from Wednesday, before Carney's much-anticipated speech.
The benchmark 10-year gilt yield stood at 2.768 percent, not far from the previous session's peak of 2.827 percent, which was a two-year high.
Analysts said sterling moves on Friday would depend on US personal income, consumption and sentiment data due for release and what it would mean for the dollar and the Federal Reserve's plans on trimming its monetary stimulus.
Morgan Stanley analysts maintain their medium-term bearish view on the pound and said a move below $1.5425, could open the way to $1.5265. However, they suggested some short-term caution that sterling could gain “given the potential for a pause today in the dollar recovery trend”. - Reuters