LONDON May 28 Sterling fell against the dollar
and euro on Wednesday, dropping back further from recent
multi-year peaks as traders cashed in on gains and reassessed
some of the more bullish bets on the timing of the first move up
in UK interest rates.
Figures this week showed UK mortgage approvals in April fell
to their lowest level since August last year, suggesting the
red-hot housing market, particularly in and around the capital
London, may be cooling.
That view was backed up by the head of the country's
third-largest mortgage lender Nationwide, who told Reuters the
market could be in the early stages of a "natural correction."
Financial markets still widely expect the Bank of England to
be the first major central bank to raise interest rates
following the emergency post-crisis rate cuts to virtually zero.
But it may not be this year, as some market participants had
started to speculate.
Investors have bet more heavily on sterling rising than any
other major currency in recent months. This week, however, they
have started to pare back these bets.
"It's all about positioning," said Marvin Barth, a currency
strategist at Barclays in London.
"The clear outperformer and everyone's favourite in the
first half of the year has been sterling. But people are getting
a little bit nervous about these long positions given that the
BoE seems to be right on (moderate-to-low) inflation ... and
that means a softer outlook for rate hikes," he said.
Sterling fell to a two-week low against the dollar in early
trade on Wednesday, and at 0830 GMT was down a quarter of one
percent at $1.6770.
The pound fell to a one-week low against the euro, with the
euro up 0.2 percent on the day at 81.23 pence.
On a short-term technical basis, the euro broke above the
100-hour moving average resistance level on Wednesday around
81.15 pence. It is the first time in three weeks that resistance
has been breached, suggesting the euro could rise further in the
On the other hand, euro zone lending figures on Wednesday
strengthened the case for the European Central Bank to ease
policy next week to fight off the threat of deflation.
(Editing by Jeremy Gaunt)