LONDON Dec 19 Sterling fell against the dollar
on Thursday, after the U.S. Federal Reserve's decision to cut
bond-buying gave a boost to the greenback.
Investors also took profit on the pound's recent rally after
UK retail sales data came mostly in line with expectations,
wrong-footing some who had positioned for a strong number. Those
expectations gathered steam after a dive in jobless numbers on
Wednesday drove the pound higher.
The dollar extended gains made after the Fed said on
Wednesday it would reduce its monthly asset purchases by $10
billion, bringing them down to $75 billion. A reduction in Fed
stimulus lifted U.S. bond yields and buoyed the
Sterling was last trading 0.2 percent lower on the day at
$1.6350, compared with $1.6386 before the UK retail
sales data was released.
The euro also gained around 0.1 percent against sterling,
rising to 83.515. It posted its biggest daily loss
against the pound in 10 months on Wednesday.
"We think that against the dollar, sterling does appear a
bit overbought. In the near term we could see sterling give back
some of its gains as the Bank of England will also try and
reinforce a dovish message," said Sasha Nugent at Caxton FX.
She added that the way the UK economy was holding up and the
jobless rate was falling, the focus would turn to expectations
of the BoE hiking rates in early 2015, while the Fed was still
in the midst of withdrawing stimulus and well away from
"That should offer sterling a lot of support," she added
The pound has risen against the dollar this year, with
gains picking up in the last six months as the UK economy has
improved faster than many of its European peers and investors
have priced in the chance of an earlier than expected rate hike
by the Bank of England.
The BoE said in its forward guidance in August that it would
not consider raising rates until unemployment fell below 7
percent, something it expected to happen by the end of 2016. It
was forced to revise that message, stressing rates would not
rise any time soon, after admitting unemployment could hit 7
percent as early as the fourth quarter of 2014.
After Wednesday's data which showed the jobless rate at 7.4
percent, sterling overnight interbank average rates moved higher
to price in the chance of a rate hike within 15 months, compared
with two years before the data was released.
"Just as the Fed has altered its forward guidance this week,
there is speculation that the BoE may have to follow suit," said
Jane Foley, senior currency strategist at Rabobank.
"We currently anticipate the first BoE rate hike in May
2015. Give the buoyancy of most UK data releases, the market
will start to bring forward its expectations for a hike unless
the Bank acts to contain speculation. For now we expect
sterling/dollar to remain well supported."