Pound slides as UK rate hike prospect dims

Recent economic data have undermined the case for British monetary policy tightening

The pound fell on Friday after Bank of England Governor Mark Carney shook the market's confidence in an early interest rate hike, dealers said.

"Carney put an end to the debate, saying that markets should not bet on a May rate rise," noted Jasper Lawler, head of research at London Capital Group.

Markets had been widely pricing in a quarter-point interest rate hike in May, to 0.75 percent, amid a pick-up in UK wage growth, but British economic data this week, including a sharp drop in retail sales, had started to dampen those expectations.

- The general path -

"Prepare for a few interest rate rises over the next few years," Carney told the BBC. "I don't want to get too focused on the precise timing, it is more about the general path."

Higher interest rates typically boost a currency as holding it generates higher returns for investors.

"While Carney did not deviate from the view that gradual rate hikes are going to be necessary, he did cast doubt on whether the next will come in May, which was heavily being priced in earlier this week," said OANDA analyst Craig Erlam.

The British currency came off its lows after Carney's fellow BoE policymaker Michael Saunders hinted that he could vote for a hike in May.

- Good for stocks -

The London stock market's FTSE 100 index gained, outperforming its European peers, as the pound's weakness boosted share prices of multinationals listed in London which derive much of their earnings in dollars.

In company activity, Irish building materials group CRH topped the FTSE risers board, rising almost four percent on swirling speculation over a US listing and share buybacks, dealers said.

Among big losers, British consumer health giant Reckitt Benckiser saw its share price dive on a poor trading update.

Shire Pharmaceuticals fell sharply as fellow Irish drugmaker Allergan ruled out a takeover bid to rival an offer by Japan's Takeda, having earlier said it was mulling such a move.

Takeda meanwhile slightly raised its offer for Shire on Friday.

- Oil down after Trump -

The Paris market posted slight gains, and Frankfurt was down.

Wall Street was down in the late New York morning trading as investors worried about rising bond yields, with some fearing that they may be a precursor to higher Fed rates.

In Asia, stock markets mostly fell as investors struggled to maintain the previous day's positive momentum following losses on Wall Street, with technology firms tracking a sharp fall in Apple.

While worries about the Syrian crisis and a potential China-US trade war keep dealers on edge, focus has for now moved to the corporate arena as the earnings season gets into full swing.

Oil prices ran into profit-taking after US President Donald Trump targeted OPEC for what he said were artificially high oil prices, saying they "will not be accepted".

His comments on Twitter came as ministers from some top global crude producers met in Saudi Arabia to discuss maintaining limits on oil production.

- Key figures around 1540 GMT -

London - FTSE 100: UP 0.5 percent at 7,348.17 points (close)

Frankfurt - DAX 30: DOWN 0.2 percent at 12,540.50 (close)

Paris - CAC 40: UP 0.4 percent at 5,412.83 (close)

EURO STOXX 50: UP 0.2 percent at 3,494.20

New York - Dow: DOWN 0.8 percent at 24,466.30

Tokyo - Nikkei 225: DOWN 0.1 percent at 22,162.24 (close)

Hong Kong - Hang Seng: DOWN 0.9 percent at 30,418.33 (close)

Shanghai - Composite: DOWN 1.5 percent at 3,071.54 (close)

Euro/dollar: DOWN at $1.2278 from $1.2346 at 2100 GMT

Dollar/yen: UP at 107.62 yen from 107.37

Pound/dollar: DOWN at $1.4032 from $1.4087

Oil - Brent North Sea: DOWN 43 cents at $73.35 per barrel

Oil - West Texas Intermediate: DOWN 38 cents at $67.95