LONDON: Sterling fell to a two-week low against a buoyant dollar as interest rate differentials moved in favour of US government bonds after the Federal Reserve signalled it was ready to withdraw monetary stimulus.
Losses could accelerate if data on UK retail sales for May, due at 0830 GMT, fall short of expectations. Retail sales are forecast to bounce after a sharp contraction in April, and while a better-than-expected number could offer sterling some help, disappointing numbers could see it drop towards $1.53.
Sterling was down 0.3 percent against the dollar at $1.5445 , having fallen to $1.5428, its lowest since June 6 and well below its four-month high of $1.5753 struck on Monday. Some support is cited around its 55-day moving average of $1.5373.
It was flat against the euro, with the single currency trading at 85.75 pence, not far from a two-month high of 85.985 pence. The euro was down 0.5 percent against the dollar.
The dollar's rise tracked US 10-year bond yields which climbed after Fed Chairman Ben Bernanke raised his outlook for the economy and signalled the central bank could begin slowing the pace of its bond-buying stimulus later this year.
US Treasuries spread over 10-year gilt yields expanded to its highest in nearly seven years with expectations that the Bank of England will keep policy loose for some time. That is likely to weigh on sterling, traders said.
"We are seeing a reaction to what Bernanke said and, while the market is expecting a good retail sales number out of the UK, there is a chance of disappointment which could weigh further on cable," said Craig Erlam, analyst at Alpari.
"Having said that, we have seen a pretty big reaction already with sterling losing nearly 200 points. So a good retail sales number could provide some relief to sterling."
Sterling fell on Wednesday after minutes showed a third of the Bank of England's Monetary Policy Committee, including outgoing Governor Mervyn King, felt more quantitative easing was needed due to weak wage growth and risks to the euro zone economy.
This raised the possibility that Mark Carney, who takes over as governor next month, could opt for more stimulus.
"Outgoing BoE Governor King seems to be preparing the field for incoming Governor Carney by calling unemployment the bigger risk compared to inflation," Morgan Stanley analysts said in a note, adding they remained bearish on sterling.
Comments
Comments are closed for this article.