Sterling weakened on Monday amid fresh signs that the UK housing market is slowing.
Property website Rightmove said that asking prices for houses were flat in the month to mid-September, while the British Bankers' Association said underlying mortgage lending rose by just £4.4bn in August, down from £5.1bn in July and the lowest level for two years.
Data from the Building Societies Association painted a similar picture, while the Council of Mortgage Lenders, the umbrella body, said gross lending in August was 13 per cent down on July.
The data rekindled arguments that five Bank of England rate rises since November have brought the housing market to heel, reducing the need for many further rises, thus stripping an element of yield support from sterling.
“This adds to the case for the Bank of England leaving rates unchanged for at least another month,” said James Knightley, economist at ING Financial Markets.
Much will now depend on Wednesday's release of the minutes of this month's monetary policy committee meeting. “Although they are expected to show that the committee voted unanimously to keep rates unchanged, they will nevertheless be studied closely in order to gain an impression of the Bank's current thinking about the slowdown in the housing market,” said Simon Derrick at Bank of New York.
The pound dipped 0.2 per cent to $1.7874 against the dollar, 0.3 per cent to £0.6805 versus the euro and 0.6 per cent to A$2.5486 against the Australian dollar.
Elsewhere the US dollar was flat ahead of Tuesday's expected rate rise by the Federal Open Markets Committee. “The market expects not only a 25-basis point rise but a more upbeat statement than in August,” said Meg Browne at HSBC. “The focus will be on whether there is a reference to growth gaining traction, which we expect, and on whether the word “measured” is retained.”
UBS offered a similar view. “Our US economists expect the Fed to indicate that inflationary expectations have moderated, but that growth has gained further traction,” said Mansoor Mohi-uddin, chief forex strategist.
With Japanese markets closed for a public holiday, the most eventful trading occurred outside the major currencies. The Polish zloty rose to a 16-month high of 4.3130 zlotys to the euro after Miroslaw Gronicki, the Polish finance minister, said the exchange rate could firm to 4.20 without hurting exporters.
The Swedish krona, meanwhile, pushed to a nine-month high against the single currency, firming 0.3 per cent to SKr9.0624. The catalyst was hawkish commentary from Riksbank governor Lars Heikensten, who said that inflationary pressures were likely to rise in the next two years. With interest rates rising from their historic lows, Sweden's trade surplus should allow the krona to appreciate.
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