LONDON May 27 Sterling weakened against the
dollar on Tuesday after a fall in British mortgage lending gave
investors an excuse to cash in on the pound's recent gains a day
after U.S. drug company Pfizer abandoned its attempt to
buy Britain's AstraZeneca.
Data from the British Bankers' Association painted a mixed
picture of the housing market but showed Britain's banks last
month approved the lowest number of mortgages since August.
One week before the Bank of England releases its own
mortgage data for April, the figures cooled some of the fervour
surrounding the housing market and tempered some of the more
bullish expectations that the BoE could start raising interest
rates later this year.
The mortgage approvals numbers "have just underlined the
fact that perhaps the housing market might be undergoing (some)
deceleration," Jeremy Stretch, head of currency strategy at CIBC
"Also from the equity side, you have that M&A fizz which had
been potentially supporting sterling...that has been taken off
the agenda at least for the short-term as well. Those two
factors together were seen as disappointing somewhat," he said,
referring to the Pfizer-Astrazenaca saga.
Pfizer on Monday walked away from its attempt to buy
AstraZeneca for nearly 70 billion pounds but markets were closed
that day for holidays in Britain and the United States.
Sterling fell to its lowest in more than a week
against the dollar to $1.6790, down around a quarter of one
percent on the day, while it was off around 0.1 percent against
the euro at 81.10 pence per euro.
Sterling has been rising steadily since last year,
underpinned by expectations that a rapid economic recovery will
see the BoE be the first major central bank to raise interest
rates, most likely early in 2015 but maybe even sooner.
BoE deputy governor Charlie Bean's comments on Sunday that
the bank's plan to raise rates gradually means the first hike
could come earlier than may otherwise have been the case had
underpinned the currency in early trade before the mortgage
British yields were little changed on the day, with the
10-year yield broadly steady at 2.64 percent and the
Gilt future settling 3 ticks lower at 110.87.
The yield premium gilts offers over equivalent German Bunds,
however, was 3 basis points higher at 125 bps as recent
European Central Bank commentary reinforced the view that the
euro zone and UK central banks are on a diverging monetary
ECB President Mario Draghi said on Sunday "more pre-emptive
action may be warranted to ward off deflation".
The pound may still be poised to launch another test of
$1.70 against the greenback. The pound traded as high as $1.6996
earlier this month, a level not seen since August 2009.
It may be a slow grind higher though, if market positioning
is any guide. The latest data from the Commodity Futures Trading
Commission released on Friday show speculators were net long of
sterling to the tune of $3.48 billion.
That is the heaviest net long position held by short-term FX
trading accounts among major currencies, a reflection that their
most bullish bets are for the pound to appreciate. Essentially,
the market is already heavily betting this way and there may not
be much more upside potential from here on.
"Sterling positioning remains the longest of any of the
currencies covered here. However, positioning is no longer
increasing, which may constitute a significant headwind for the
pound," JP Morgan strategists wrote in a note on Tuesday.
(Editing by Hugh Lawson and Angus MacSwan)