Sterling inches lower, rate cut outlook weighs

Sterling edged lower against the dollar on Friday, ending the week on a subdued note after a series of negative data added to expectations that the Bank of England is set to cut interest rates.

The pound has been a key destination for the carry trade where investors borrow low-yielding currencies like the yen to fund purchases of higher yielding assets.

However a cut in interest rates last week and a series of data showing the UK housing market is facing a significant slowdown has meant that the pound has not tracked other high yielding currencies higher when risk appetite recovered.

Both Halifax and Nationwide predict flat house prices in 2008 and the Royal Institution of Chartered Surveyors posted its most negative reading in its balance for house prices since May 2005.

"The newsflow for the UK has been dovish which has limited any upside for the pound," said Daragh Maher, currency strategist. "However there has not been much news that has comprehensively changed people's view, so it has traded in ranges."

At 0832 the pound was down 0.1 percent versus the dollar at $2.0385. It was steady against the euro at 71.64 pence.

Monetary Policy Committee member Paul Tucker said on Thursday that policymakers need to make sure tighter credit conditions don't start a vicious circle slowing the economy thereby engendering even harder borrowing conditions.

Source Supplied by Reuters.

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