Sterling slips against dollar as GDP confidence boost recedes

LONDON (Reuters) - The British pound skidded against the dollar on Thursday, reversing earlier gains as confidence inspired by stronger-than-expected growth results was replaced by caution over the likelihood of an interest rate hike next week.

Pound coins are seen in the photo illustration taken in Manchester, Britain September 6, 2017. REUTERS/Phil Noble/Illustration

While the European Central Bank announced the extension of its asset purchase programme until well into next year, investors are still waiting to see whether the Bank of England will go ahead with a rise in rates after its next meeting on Nov. 2.

Though the market is still largely priced for the hike - the Bank’s first in over a decade - the confidence boost inspired by Wednesday’s strong third-quarter GDP figures largely receded on Thursday.

The pound pulled back from a nine-day high against the dollar dropping by 0.6 percent on the day. By 1550 GMT it had steadied a touch above the day’s lows, trading at $1.3180.

Against the euro, sterling was up 0.3 percent at 1550 GMT.

“It’s a paring of yesterday’s gains... When we look at the broader trend over the last few weeks we’re basically seeing a trade sideways ahead of this Bank of England decision next week,” said Craig Erlam, senior market analyst at OANDA.

“There’s still a big split at the BoE ... there’s at least a few policymakers that are unsure,” Erlam said, adding that the drop in sterling also reflected a return to caution among some investors in a day that brought a mixed bag of other economic data.

Figures from the British car industry on Thursday showed production falling by 4.1 percent in September from the same month a year earlier, a fifth decline in six months that adds to signs of faltering consumer and business confidence.

New retail sales data also showed the fastest drop in sales in October since early 2009.

However, other Thursday data showed strong growth in the number of homes British construction companies applied to build over the three months to the end of September.

Worries about the progress of Brexit negotiations also continued to weigh on the pound, analysts said, with confusion over the details of the government’s strategy adding to a climate of uncertainty.

“We still have the overarching Brexit uncertainties and concerns over the contentious negotiations we’ve seen so far,” said Alexandra Russell-Oliver, currency strategist at Caxton FX.

The British government said on Thursday its key piece of Brexit legislation would be debated in parliament on Nov. 14 and 15, the next stage in what is expected to be a difficult lawmaking process that will test Prime Minister Theresa May’s authority.

Reporting by Polina Ivanova; Editing by Richard Balmforth