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Sterling hits 5 1/2-month high against struggling dollar
May 14, 2015 / 3:42 PM / 2 years ago

Sterling hits 5 1/2-month high against struggling dollar

LONDON, May 14 (Reuters) - Sterling hit a 5 1/2-month high on Thursday against a dollar weakened by worries about the U.S. economy, marking the fifth day of gains for the pound since the Conservatives were voted back into government.

Sterling had earlier been boosted by comments by Bank of Enlgland Governor Mark Carney, who said, when asked in a BBC interview if interest rates were likely to be higher by this time next year, “It’s possible, but it depends on the evolution of the economy.”

Carney also said sterling’s strength might weaken growth, echoing comments made on Wednesday when he said a strong currency was “relevant” to the path of interest rates.

Expectations Britain would be the first to raise rates after the U.S., as well as the European Central Bank’s 1 trillion-euro quantitative easing programme, helped drive the pound to its highest in almost seven years against a trade-weighted basket of currencies. That was bad news for British exporters.

But the dollar has also come under pressure in recent weeks as data has fallen short of expectations. Retail sales numbers for April came in worse than forecast on Wednesday, bolstering the view that the Federal Reserve was unlikely to raise rates in a hurry.

Sterling traded as high as $1.5815 on Thursday, its strongest since late November, before edging back down to $1.5753, still up 0.1 percent on the day. The euro also hit a three-month high against the dollar.

“There was bit of a reaction to (Carney’s comments), but I‘m not sure that was new information,” said Societe Generale currency strategist Alvin Tan. “It’s more of a squeeze on dollars that’s happening today across the board.”

Commerzbank said in a note that downgrades to productivity forecasts indicate the BoE would not be comfortable with the pound’s appreciation over the longer term.

“Indeed, if the forecasts manifest then further sterling appreciation would not be justified at all. We remain of the view that euro/sterling will trade at lower levels over the medium term more so as a function of euro weakness,” they said. (Editing by Larry King)

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