Pound gains as economic data deter further rate-cut bets

Aug 2 | Updated: Aug 3 2005, 05:30am hrs
The pound advanced for a second day against the dollar after recent economic data cast doubt on expectations that the Bank of England will cut its benchmark interest rate more than once this year.

Better-than-expected reports on UK retail sales, house-prices and consumer confidence have prompted investors to scale back expectations of rate cuts from the Bank of England, interest-rate futures trading shows. The Confederation of British Industry said its survey of July retail sales showed retailers were largely unaffected by terror attacks on July 7.

Two or three cuts have been priced into the market and it is not entirely justified, said Adarsh Sinha, a currency strategist at Barclays Capital in London. We see unwinding of those expectations now.

Against the dollar, the pound was at $1.7704 in London from $1.7683 late yesterday, the highest since July 12. Against the euro, the pound traded at 68.95 pence, unchanged from late yesterday. The UK currency fell 2.1% against the euro last month.

The pound pared gains after Sky News reported that Londons police sealed off a street near Kings Cross in central London after smoke was seen coming from a bus. Witnesses reported a suspect package on board the bus, Sky News said.

The Bank of England is still expected to cut its benchmark interest rate on Aug 4, according to all but five of the 40 economists surveyed by Bloomberg News. The UK economy grew at a 1.7% annual pace in the three months ended June 30, the slowest since 1993.

A report on the UK services industry on August 3 may give investors further clues as to whether the economy is slowing enough to prompt the central bank to cut its main rate more than once, according to Sinha.

Bloomberg