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Sterling surges after Carney comments

Tuesday, December 10 11:33:53

Sterling hit a two-year high against the dollar today as investors took upbeat comments from Bank of England Governor Mark Carney and a strong house price survey as signs that interest rates could rise earlier than previously thought.

The pound rose to $1.6468 in Asian trading, levels it last hit in August 2011. It later fell back to trade up marginally against the dollar at $1.6435.

Investors were buoyed by Carney's comments late on Monday that Britain's economic recovery is showing signs it can reach self-sustaining momentum, although he also said monetary policy will need to remain exceptionally loose for some time.

Carney said the central bank was concerned about where Britain's surging housing market might head - an area of focus for investors expecting rates to rise sooner - but that it had tools to prevent the housing market from hitting "warp speed".

Slightly better than forecast industrial output data underlined the view that has been growing since the summer of a sustainable UK economic recovery, although the trade deficit narrowed slightly but was bigger than forecast.

"For now, markets clearly doubt Carney's rate view, preferring to focus on his admission that the economy is building up significant momentum," said ING analyst Tom Levinson.

"Sterling/dollar may be on the cusp of a major move toward $1.70, having tried and failed to break back below $1.63 last week."

Royal Institution of Chartered Surveyors (RICS) said on Tuesday that 59 percent of surveyors forecast prices would rise over the next three months, the highest reading since September 1999, after strong house price data on Friday.

The pound was also influenced by the strength of the euro, which rose to a six-week peak against the dollar as expectations for further near-term stimulus from the European Central Bank faded.

The euro was up 0.1 percent against the pound at 83.64 pence.

"Sterling has been caught in the crossfire of euro/sterling. It's not having much independent direction," said Adam Cole, global head of FX strategy at RBC Capital Markets. (Reuters)