The Bank of England tightened lending norms to the housing sector
but its measures were less aggressive than many in the market had
anticipated. That kept expectations for an interest rate rise as
soon as by the end of this year intact.
Sterling rallied to a day's high against the dollar of $1.7036 after
the BoE released its Financial Stability Report - not far off a
six-year high of $1.7064 touched last week - from around $1.7010
The dollar index languished near one-month lows in the wake of data,
on Wednesday, showing a sharp contraction in U.S. gross domestic
product in the first quarter, which suggested the Federal Reserve
would be in no hurry to raise interest rates.
Economists, however, say the U.S. economy has since improved and the
market will be looking for signs of that in personal consumption
data due at 1230 GMT.
The price index for personal consumption expenditures, watched by
the Federal Reserve, is expected to have reached its highest since
late 2012 in May. <ECONUS>
The dollar index <.DXY> was at 80.211, having fallen to as low as
80.091 on Wednesday, a low not seen since May 22. The dollar could
get a boost if Thursday's data shows consumption ticking up along
with prices in May.
The benchmark U.S. 10-year Treasury yield, which skidded to a
three-week low of 2.529 percent on Wednesday, recovered to 2.555
percent, but was still below Wednesday's U.S. close of 2.559
"The GDP numbers were a shocker, but they are backward looking. The
data lately have been good, especially a pick-up in consumer
confidence, and if spending and inflation beat expectations today we
could see the dollar recover," said Niels Christensen, FX
strategist, at Nordea.
"But most of the upswing in the dollar could come next week as
month-end factors are likely to help the euro."
The euro hit a day's low against the pound of 79.905 pence as BoE
Governor Mark Carney said the latest macro prudential norms to cool
the housing sector would not change the outlook for monetary policy.
[to top of second column]
"With the consensus support for the pound underpinned by the outlook
for the economic and monetary cycle, today's actions are unlikely to
significantly change that assessment," said Josh O'Byrne, currency
analyst at Citi.
Britain's housing market has made a swift recovery with prices up
about 10 percent in the past 12 months. That has put the spotlight
on the BoE's ability to prevent a bubble forming without raising
rates sooner than it is planning for fear of derailing economic
Against the dollar, the euro slipped to $1.3615.
The dollar fell 0.15 percent against the yen to 101.70 yen.
Still, yen gains were likely to be limited by expectations that the
Bank of Japan might have to ease policy again by December, according
to a Reuters poll published on Wednesday.
(Editing by Susan Fenton)
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