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FOREX -Pound hits 4-month low after BoE's dovish shift, euro eyes GDP
August 14, 2014 / 4:15 AM / 3 years ago

FOREX -Pound hits 4-month low after BoE's dovish shift, euro eyes GDP

* Sterling struggles as markets push back rate hike bets

* BOE wrongfoots investors by putting accent on weak wages

* Euro bracing for euro zone growth, inflation data (Updates prices, adds comments)

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, Aug 14 (Reuters) - Sterling set a fresh four-month low on Thursday, staying on the defensive after the Bank of England surprised investors the previous day by signalling it was in no hurry to raise interest rates.

The pound touched a low of $1.6668, its lowest level since mid-April, and down 3 percent from a near six-year high of $1.7192 touched in mid-July. It last traded at $1.6680, down about 0.1 percent on the day.

Wrong-footing the market again, Governor Mark Carney indicated on Wednesday that wage developments would be key to the exact timing of a rate move as the BOE slashed its forecast for wage growth.

Yet just a few months ago, Carney made sterling jump by warning investors that they were not sufficiently pricing in the chance of an early increase in record-low rates.

Given the shift in Carney’s comments, it may be difficult to find reasons to buy the pound, said Masafumi Yamamoto, market strategist for Praevidentia Strategy in Tokyo.

“I think we could start to see people chase the current momentum and aggressively build short positions,” he said.

Sterling could eventually drop to levels around $1.6500, Yamamoto said, adding that the pound’s recent retreat was probably mainly due to profit-taking.

One possible support level for sterling now lies at $1.6664, its 200-day moving average.

The setback in the pound helped support the dollar versus a basket of major currencies. The dollar index edged up 0.1 percent to 81.653, not far from an 11-month high of 81.716 set last week.

Against the yen, the dollar edged up 0.2 percent to 102.60 yen. The dollar has bounced back after hitting a two-week low of 101.51 yen late last week, when the safe-haven yen rose as geopolitical tensions sapped risk appetite.

A trader for a Japanese bank in Singapore said firm regional equities helped weigh on the yen versus the dollar in Thursday’s Asian trade.

The euro held steady near $1.3361, having drifted off the previous day’s high of $1.3416.

Latest data showing a surprise contraction in euro zone industrial production in June kept alive expectations for more stimulus from the European Central Bank and was certainly of no help to the common currency.

The euro could easily retest a nine-month trough of $1.3333 set last week if the region’s gross domestic product data due later in the day were to disappoint.

“We see little scope for positive domestic news for EUR/USD, with GDP data in particular looking vulnerable to a negative surprise. We remain short with a $1.32 target,” analysts at BNP Paribas wrote in a note to clients.

A better-than-expected rise in New Zealand’s second quarter retail sales helped give the kiwi a small fillip, pushing it to a one-week high of $0.8490.

The New Zealand dollar last traded at $0.8466, up 0.1 percent for the day. (Editing by Eric Meijer)

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