By Stefano Rebaudo
(Reuters) -Sterling clawed back some losses on Thursday after Bank of England policymaker Catherine Mann suggested rates could stay higher for longer, though the pound remained largely at the mercy of dollar crosses.
BoE’s Mann said on Thursday that inflation expectations in Britain remain too high.
Traders are fully pricing in a 25 basis point BoE rate cut by April as concerns over the British economy and next month’s budget keep investors on edge.
Sterling was down 0.20% at $1.3374, after hitting $1.3344, its lowest since September 26. It also lost ground against the euro and the yen as investors took a breather after a four-day rising streak.
The U.S. dollar extended this week’s gains, helped by a euro weakened by the political crisis in Paris and a struggling yen amid a change of guard in Japan’s ruling party.
Sterling eased 0.05% to 86.82 pence per euro. The pound hit 86.57 pence on Wednesday, the strongest since September 16.
It also fell 0.35% to 204.20 versus the yen on Thursday, having touched a 15-month high of 205.08 the day before.
Investors fretted that potential tax hikes in next month’s budget, aimed at meeting fiscal rules, could weigh on the economy and currency.
Britain’s housing market lost momentum for a third month in a row and confidence among businesses has fallen sharply, according to two surveys published on Thursday that reflected worries about finance minister Rachel Reeves’ November budget.
“Whether this is the start of a marked downturn in the housing market will depend on the outcome of the budget,” said Ashley Webb, UK economist at Capital Economics. “The prospect of tax rises…has put the housing market on ice.”
(reporting by Stefano Rebaudo; editing by Kirsten Donovan)
