LONDON, July 30: Sterling came off its two-month peak versus the euro on Tuesday after a key survey showing a slump in British consumer confidence reinforced expectations the Bank of England will keep its rates unchanged this week.
But the pound gained ground against the dollar as Wall Street reversed on Tuesday after a stunning rally in the previous session, pressuring the greenback across the board.
The poll by research company Martin Hamblin GfK showed the sentiment index fell to its lowest for seven months in July as plunging stock markets took their toll on sentiment, pulling sterling off its peak of 62.61 pence to 62.83.
Equity market uncertainties and an adverse impact on consumer confidence argue against a need for a rate hike now, said Adam Chester, treasury economist at Halifax.
For cable, US equities are coming off again and that’s helping sterling against the dollar.
The pound had risen to $1.5672 from $1.5629 in late New York on Monday having spent much of the day trudging along a narrow path around $1.5640.
A new survey showed opposition in Britain to ditching the pound in favour of the euro has risen but had no significant impact on sterling.
The BoE will begin its Monetary Policy Committee meeting on Wednesday and the outcome is expected on Thursday.
Recent data underlining the slowdown in the consumer sector have further increased speculation the BoE will leave rates unchanged at a 38-year low of four per cent.
Analysts say this could take some gloss off sterling, which has seen some inflows seeking higher returns.
The Confederation of British Industry will release its distributive trades survey for July on Wednesday.
The dollar pulled back from three-week peaks against the euro and the yen on Tuesday as dealers turned cautious on the outlook for Wall Street ahead of key US consumer confidence data later in the day.
US stock market futures were pointing to a modest pullback at the open after a roaring session on Monday which saw the Dow Jones Industrial Average post its third largest point gain ever.
The correlation between the dollar and stocks is very much in evidence, said Mitul Kotecha, global head of foreign exchange research at Credit Agricole Indosuez.
The recent recovery in equity markets has offered the dollar some stability but we need to see US assets outperform for the dollar to make more significant headway.
The dollar stood at 119.38 yen down a yen from three-week highs scaled in Asian trade but still up four yen from 17-month lows set earlier this month.
The euro was up a third of a percent at $0.9842, having fallen to three-week lows at $0.9766 in Monday’s New York session, down from two-and-a-half year highs above $1.02 scaled just over a week ago.
Stock market turmoil has weighed heavily on the dollar in recent weeks, raising doubts over the United States’ ability to attract enough overseas capital to offset its huge trade deficit.
Steve Barrow, currency strategist at Bear Stearns, said the dollar’s pullback partially reflected caution ahead of Wall Street but was also due to investors simply reaping the short-term benefit of the dollar’s recent rally, in the belief it was still in a longer-term downtrend.
In general it reflects the fact that the market is still a bit suspicious of this dollar rally, he said.—Reuters