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Sterling takes a beating from the dollar

Thursday, August 21 11:16:36

Sterling traded near its lowest in more than four months against the dollar today after taking a hammering along with a raft of other currencies against the greenback overnight on the back of U.S. Federal Reserve meeting minutes.

The pound, down more than six cents in the past month, had gained a foothold on Wednesday after minutes from the Bank of England's own last policy meeting showed the first dissenting votes on its policy committee for a rise in interest rates.

But a similarly hawkish message from the Fed sent the dollar higher across the board after UK markets closed, driving the pound to less than $1.66 for the first time since early April.

Slightly softer British retail sales today added to the pressure.

"Its all about the Fed this morning and possibly some digestion of the BoE minutes from yesterday," said Michael Sneyd, a strategist with French bank BNP Paribas in London.

Sneyd and his colleagues at BNP are still in the broadly bullish camp which drove the pound some 15 percent higher in the year to July, hitting a peak of $1.7192 just over a month ago.

Investors have been trimming those bets since and Sneyd said that a positioning indicator run by BNP had halved from 43 points in July to around 20 now. He said that had encouraged him to believe there was now room for more money to swing back behind sterling, still supported by an economy that is expanding far faster than its peers in Europe.

"We still think the Bank of England will raise interest rates in November," he said.

"There are dovish messages in the minutes yesterday, but the bottom line is that it only takes three more members of the council to vote for a rise in rates for it to happen."

Against the euro, the pound remains far more robust. The euro hit a session high of 80.085 pence after the retail sales figures, but is still just over one pence away from almost 2-year lows hit a month ago.

"I still like sterling against the euro but with this dollar strength I think the action yesterday and overnight showed you that its worth selling cable into any rally," said a dealer with one large bank in London. "The dollar is only getting stronger." (Reuters)

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