LONDON: Sterling rose on Monday, on track for its biggest daily gains against the dollar in a month, after Bank of England chief Mark Carney said interest rates may rise before wages start to go up.
His comments offset data from Right move that showed British house prices were cooling in August as tougher checks on mortgage lending began to be felt and the market got ready for higher interest rates.
"We have to have the confidence that real wages are going to be growing sustainably" before raising rates, Carney told the Sunday Times. "We don't have to wait for the fact of that turn to do so."
That came just days after the bank's Quarterly Inflation Report last Wednesday suggested the BoE was unlikely to raise rates unless wage growth picked up. Sterling fell as much as 1 percent in the next two days, as investors pushed back rate-hike forecasts to February next year from the December 2014 some had expected.
Sterling rose 0.3 percent to $1.6735, recovering from a four-month low of $1.6657 struck on Thursday, a day after the Inflation Report. The pound rose more against the euro, with the single currency losing 0.4 percent to trade at 79.97 pence. The euro had risen to a two-month high of 80.37 pence last week before retreating.
Lee Hardman, a currency analyst at Bank of Tokyo Mitsubishi, said the weekend's comments would keep alive expectations that the latest monetary policy committee minutes may be interpreted as more hawkish than the Inflation Report and might also include a first dissenting vote in favour of a rate hike. Minutes from the latest monetary policy meeting are due Wednesday.
"Given the scale of sterling sell off last week, sterling downside for the week looks limited," said Petr Krpata, a currency analyst at ING. He added that Carney's latest comments as well as the possibility a policymaker had voted for a rate increase are likely to offer sterling some support.
Sterling had been the best performer by far among major currencies in the year to the start of July, pushed up by expectations the BoE might start raising interest rates to cool the economy as early as November.
The first detailed report on second-quarter gross domestic product on Friday showed the economy was expanding. But it did little to quell doubts over whether the growth was generating any upward pressure on wages and inflation.
With the housing sector showing signs of cooling, some analysts said sterling's gains would be muted. "We are looking to sell sterling/dollar rebounds into the $1.6850 area," Morgan Stanley said in a morning note.
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