Sterling holds near 10-day lows vs dlr; BOE eyed

LONDON: Sterling softened to near 10-day lows against the U.S. dollar on Tuesday as tepid consumption data and business surveys underlined the challenges facing the British economy.

British households spent more money on food and other essentials last month but held back on less urgent purchases as they faced rising prices, two sets of industry figures showed on Tuesday.

Sterling edged lower to 1.2870 against the dollar in early trades and has weakened more than 1 percent since it hit a one-month high above 1.30 last week after Bank of England Governor Mark Carney said that a rise in rates was likely to be needed as the economy came close to running at full capacity.

Market watchers will get fresh insights into the central bank's thinking later in the day with two policymakers making separate appearances. Three policymakers voted last month for a rate rise, and both Carney and his chief economist Andy Haldane have said they could vote for a rate rise later this year.

With markets pricing in roughly a 50 percent probability of a quarter percentage point hike by year-end, strategists at RBC Capital Markets believe the weakness in the pound may have more room to run if policymakers, particularly BOE Deputy Governor Ben Broadbent, adopt a cautious note.

Broadbent is due to give a speech at 1100 GMT on Tuesday.

RBC recommends a short sterling trade against the U.S. dollar at 1.2895 targeting a level of 1.2635.

Optimism about the business environment among Britain's financial services firms declined in the second quarter of this year, according to a survey published on Tuesday.