Sterling rebounds to cap best January in six years

LONDON (Reuters) - Sterling pounced on a wounded dollar on Tuesday, as it recovered from disappointing consumer credit data to cap its best January since 2011.

A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand October 12, 2010. REUTERS/Sukree Sukplang/File Photo

It was also set to be the pound’s first positive start to the year since 2012, but it was not without difficulties as it continued to struggle against the euro and the safe-haven Japanese yen and Swiss franc.

Bank of England figures on Tuesday showed consumers slowed the pace of borrowing in December for the first time in five months, an early sign that households might be reining in their spending as inflation rises.

There was also a shiver as separate figures showed that foreigners had been net sellers of British government bonds, known as gilts, for the first time since July.

The pound sank as low as $1.2412 in the half-hour after the consumer data only to roar back past $1.2575 when U.S. President Donald Trump and his top trade adviser sent the dollar tumbling with comments about other countries’ devaluations of their currencies.

“It is very much a function of the political mess that is unfolding in Washington,” said TD Securities European head of currency strategy Ned Rumpeltin.

“Clearly the focus on idiosyncratic currency risks has been replaced by the systemic risk.”

It wasn’t a broad rebound for sterling, however. The pound was still down 0.2 percent against the euro and yen at 85.84 pence per euro and 141.78 yen respectively.

The recent signs of weakness in UK data mean that few analysts hold out much hope that the Bank of England’s latest inflation report and readout on the economy on Thursday will offer much encouragement to sterling.

“We have a bearish view into the Bank’s meeting,” said Citi head of G10 FX strategy Richard Cochinos, speaking before the data but also pointing to a fall in another sentiment indicator run by UK financial institution Lloyds.

“It has been just a one-way story in terms of UK data but we are beginning to get some signs of weakness now.”

HSBC advised its clients on Monday to sell the pound, with a target of $1.2040 and stop loss at $1.2810.

Lawmakers in Britain’s lower house of parliament are holding a two-day debate over the triggering of formal negotiations that will take the country out of the European Union.

British Prime Minister Theresa May’s Brexit bill is expected to survive weeks of intense parliamentary scrutiny that began in the House of Commons on Tuesday, despite pro-EU lawmakers’ attempts to force the government to rethink its strategy.

May’s government is seeking parliament’s approval for a law giving her the right to trigger Article 50 - the legal starting point for leaving the EU - after the Supreme Court ruled last week she could not take that decision unilaterally.

It is expected to use its majority to resist any substantial amendments to the bill, facing down opponents of a “hard Brexit” that will prioritise immigration controls over membership of Europe’s lucrative single market.

Global banks must plan for a “hard” Brexit or risk breaching regulatory requirements and disrupting business, according to an industry report seen by Reuters, the first since May’s signal this month that Britain would leave the single market.

Additional reporting by Jemima Kelly; Editing by Gareth Jones