Sterling weak but steady after BoE testimony

LONDON: Sterling drifted lower on Tuesday as a mixed bag of testimony to parliament by Bank of England Governor Mark Carney and fellow policymakers failed to shift the consensus view on when interest rates will start to rise.

The pound has shown resilience against the dollar in the past week but is still 9 percent down from July's 2014 peak of $1.71, frustrated by political risk and a pushing out of rate hike expectations.

Traders said that while there were hints in the testimony that another member of the BoE's nine-strong policy committee, Kristin Forbes, was inching closer to a vote to tighten monetary policy, they still see the bank in "wait and see" mode.

In just a few months, markets have gone from pricing in a chance that the Bank would raise rates before the end of this year to not pricing in a full quarter-point move until the end of 2015.

"The overall conclusion is still that they now have no idea when they will raise and Carney and others will -- sensibly, given everything that is happening in the euro zone -- hold off for as long as possible," said a trader at one London bank. "It is difficult to see much movement for sterling on this today."

Sterling was just over 0.1 percent lower against both the euro and dollar at 79.30 pence per euro and $1.5681 .

Commerzbank technical analysts said the pound looked tentatively to have established a bottom at $1.5592 last week and saw it trapped in a tight range of between 78 and just over 80 pence per euro.

BMO strategist Stephen Gallo saw the potential for small losses against a broadly strongly dollar over the next three months although that did not factor in the potential risks to the pound from next May's election.

Prime Minister David Cameron's Conservatives lost a second parliamentary seat to the anti-European Union UKIP party last week, reinforcing worries that no party will win a majority and that there may follow a referendum on Britain leaving the EU.

"We see sterling at $1.53 in three months but the political risks are not really part of that," Gallo said. "I don't think they are priced in by the market yet. January, February, March is when they may come to bear."