Sterling hit a 15-month peak against the euro and a one-month high versus the dollar on Monday after robust British mortgage lending and money supply data cemented expectations of an interest rate hike next week.
British mortgage approvals hit their highest level in 2-1/2 years in September, signalling that a surprise Bank of England rate rise in August did little to cool the housing market.
The Bank of England is widely expected to raise borrowing costs a quarter of a percentage point next week to 5.00 percent to ward off inflation, boosting sterling's yield appeal. "We did see M4 growing at a rate not seen since 1990, and we have mortgage allocation going through the roof," Hans-Guenter Redeker, chief FX strategist at BNP Paribas, said. "It is very likely that they are going to hike in November, but market is now getting the opinion that (there may be) another rate hike in February. That is creating demand and keeping sterling supported," he added.
By 1524 GMT, the pound was up 0.17 percent against the dollar at a fresh one-month high of 1.9022. Against the euro, sterling hit a 15-month high of 66.79 pence. "Euro/sterling is on the brink," said Ian Gunner, head of FX research at Mellon Financial Corp. "If it closes below 66.80/85, we could see it heading down to 66.40/50."
The Bank of England said on Monday approvals for home loans stood at 126,000 last month, up from 120,000 in August, and the highest since February 2004.
M4 money supply growth was confirmed at an annual rate of 14.5 percent - its fastest rate since September 1990 - and likely to worry policymakers who have recently flagged up the data as a harbringer of escalating inflationary pressures.
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