Sterling reaches an eight month high against the dollar but gains fizzle out

STERLING hit an eight-month high against the dollar yesterday due to surprisingly strong UK house price data, but its gains fizzled out after a moderating decline in US home prices later boosted the US currency.

Weaker-than-expected figures on UK gross domestic product also stung the pound on the view that the nation’s economy continues to struggle, knocking sterling from its highest level of the year hit against a currency basket in early London trade.

Trade was volatile on the last day of the quarter and half-year, and analysts said corporate demand to buy and sell the dollar for last-minute book keeping purposes was driving broader currency movements.

Sterling initially rose more than one per cent on the day against the dollar to $1.6745, its highest since mid-October, after the Nationwide building society said house prices rose 0.9 perc ent in June, confounding forecasts for a fall.

But dismal first-quarter gross domestic product data, which posted their biggest fall in 50 years on a quarterly basis, clipped the pound’s rally, while the dollar’s climb on a moderating fall US house prices exacerbated sterling losses.

“The UK GDP numbers were not great, so we’ve seen a pullback in sterling as a consequence,” said Steve Barrow, head of G10 currency research at Standard Bank.