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Sterling stalls on construction data

Friday, May 02 12:01:08

Sterling struggled to make any further headway today, penned in by a slightly lower than forecast construction sector survey and the prospect of monthly U.S. jobs data later in the session.

The pound had neared five-year highs against the dollar on Thursday following a robust UK manufacturing purchasing managers' survey (PMI).

The equivalent construction PMI for April on Friday also showed growth in the sector but fell short of expectations and dealers said the pound looked set to trade in a tight range ahead of the U.S. non-farm payrolls report, due at 1230 GMT.

"For today Cable (sterling against the dollar) looks like its going to settle back a little bit," said Ian Stannard, European head of currency strategy at Morgan Stanley in London.

"We are not going to rule out any further upside but it will be increasingly difficult to get further positive surprises on the economy."

Sterling fell less than 0.1 percent to $1.6883 and was flat against the euro at 82.08 pence.

After a strong second half of last year which saw it gain 10 percent against the dollar, thanks largely to an improving UK economy, the pound steadied in mid-February, in part a reflection of doubts over the structure of the recovery.

Many economists argue that Britain's upturn remains largely a matter of rising house prices in a small number of cities, fuelling the same sort of credit bubble that prefaced the financial crisis of 2007-8.

As a result Stannard is one of a number of analysts now speculating that some sort of macroprudential steps may preface - and potentially delay - the rise in interest rates markets have priced in for early next year.

Bank of England deputy governor John Cunliffe delivered the bank's starkest warning yet on the issue on Thursday, saying it would be dangerous to ignore the momentum from rising house prices.

"We have deep-seated concerns on this front and feel that there has been a conspicuous absence of debate about the limited representation of asset prices in central bank stability mandates," said BNY Mellon analysts in an extensive morning note on the issue today. (Reuters)