FOREX -Sterling unsettled by less hawkish BOE, G3 currencies mark time

Tue Jun 24, 2014 8:02pm EDT

Related Topics

* Sterling, Aussie and kiwi retreat from recent highs

* BOE's Carney less hawkish than expected

* G3 currencies still stuck in a rut

By Ian Chua

SYDNEY, June 25 (Reuters) - Sterling nursed losses early on Wednesday after comments from the Bank of England governor cooled expectations for an interest rate hike this year, while the G3 currencies remained stuck in well-worn ranges following yet another non-committal session.

Surprisingly less hawkish comments from BoE Governor Mark Carney saw the pound dip to a near one-week low of $1.6966 , pulling away from a 5-1/2 year peak of $1.7064 set last Wednesday.

Carney said Britain's economy still has plenty of slack to work through and that financial markets underestimate how much uncertainty there is in the economy.

The impression he left was a dovish one and rather hard to reconcile with his abrupt and hawkish change of policy signalling at a speech earlier this month, JPMorgan analysts said.

"This leaves GBP confused, and naturally trading on the back foot given the extent of bullish sterling positioning that needs confirmation of a more clearly hawkish shift in the BoE's overall reading of the economy," they wrote in a note to clients.

Also in the cross hairs of profit takers, the Australian dollar slid to $0.9366 while its New Zealand peer fell to $0.8663. Earlier this week, the Aussie hit an 11-week high of $0.9445 and the kiwi scaled a seven-week peak of $0.8749.

The setback in the Antipodean currencies coincided with a decline in U.S. stocks as concerns about the violence in Iraq gave investors a reason to book some profits. The S&P 500 hit an intraday record high before turning tail.

Little can be said about the G3 currencies, which continued to drift aimlessly as investors are convinced that all three major central banks will keep monetary policy loose for some time yet.

An influential Federal Reserve policymaker, William Dudley, said on Tuesday the U.S. central bank can reasonably wait until mid-2015 to raise interest rates without risking an undesirable rise in inflation.

The latest readings on the U.S. economy were encouraging with consumer confidence at its highest in 6-1/2 years, while sales of new homes surged in May, more signs the economic recovery is back on track.

Latest euro zone data supported the case for the European Central Bank to stay dovish. A closely watched report showed German business sentiment weakened more than expected in June as companies fretted that tensions in Ukraine and Iraq would hurt their business.

The euro traded at $1.3605, well within this month's $1.3503-$1.3678 range. Against the yen, the common currency appeared to have flatlined near 138.70 after drifting up from a four-month trough of 137.70 on June 16.

The greenback fetched 101.94 yen, having drifted on either side of 102.00 for the past two weeks. All this left the dollar index stuck near the middle of a 81.000-80.000 range seen since mid-May.

Asia is looking at the prospect of another data-free session, leaving the focus on equities.

There was little reaction to Japan's latest instalment of measures to boost long-term economic growth, given most have been trailed in advance.

Experts say the update of the so-called "Third Arrow" of Prime Minister Shinzo Abe's strategy to revitalise Japan was a step in the right direction. But how the reforms are fleshed out and implemented remain to be seen. (Editing by Shri Navaratnam)

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