LONDON: Sterling retreated from the previous day's one-week high against the dollar on Wednesday after yet another Bank of England policymaker said interest rates would stay lower for longer.
Sterling rose against the dollar on Tuesday after U.S. data showed capital goods orders dropped the most for eight months in September. But it failed to build on those gains and eased to $1.6120, having hit $1.6182 after the U.S. data.
It was flat against the euro. The single currency was trading at 78.925.
Data on Wednesday showed British lenders approved the fewest mortgages in more than a year last month, adding to evidence that housing market activity is moderating.
More importantly, sterling was weighed down by comments from Bank of England Deputy Governor Jon Cunliffe, who said on Tuesday the central bank could leave rates near their record low for longer than first thought.
That chimed with comments from another Deputy Governor, Minouche Shafik, who said the BoE would need to see more signs of price pressures building before it begins to increase interest rates and that slack remained in the labour market.
"Cunliffe went on to highlight the signs of slowing in the UK economy and the deteriorating external environment. We see the recent sterling/dollar rebound as providing a renewed selling opportunity," Morgan Stanley said in a note.
These comments were seen by investors as consistent with a dovish tone from the BoE. Minutes of its latest monetary policy meeting showed MPC members were against raising rates for now, pointing to weak inflation pressure at home and a slowdown in the euro zone, Britain's most important export market.
Out of the MPC's nine members, only Martin Weale and Ian McCafferty have so far voted to raise interest rates from their record low level of 0.5 percent.
Sterling had reached a six-year high against the dollar in mid-July on expectations that the BoE would start hiking interest rates by the end of this year. But those bets have since been pushed well back, with many now not expecting rates to rise until the second half of next year.
The U.S. Federal Reserve's rate-setting Open Market Committee (FOMC) ends a two-day meeting later in the day, and is widely expected to end its $4 trillion asset purchase programme.
Most investors also expect the FOMC to keep its key policy language unchanged in its statement, with the phrase "a considerable amount of time" being retained with respect to the timing of a rise in interest rates.
"Where sterling/dollar trades will be completely dependent on how the markets react to the Federal Reserve announcement this evening. An upside move to $1.62 remains possible, but it would require a dovish Fed comment tonight," FXTM chief market analyst, Jameel Ahmad, said.
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