Sterling rises above $1.70

Sterling rose on Thursday before a Bank of England financial stability report which is likely to contain measures to cool the UK's housing market, adding fuel to the debate over when a hike in interest rates will come. BoE Governor Mark Carney has warned that the biggest domestic threat to financial stability is that of rapidly increasing house prices.
The report is expected to make recommendations - so-called macroprudential measures - for lenders on how to reduce that risk. Sterling was up a quarter of a percent at $1.7024, although still below last week's 5-1/2-year high of $1.7064. The euro fell about 0.3 percent against the pound to 80.00 pence.
"The focus turns from conventional monetary policy to unconventional macroprudential policy today," said Paul Robson, a currency strategist at RBS Global Banking. "The devil will be in the detail but the rule of thumb is that the tighter macroprudential policy becomes, the looser the margin that conventional monetary policy can be, ie interest rates might not have to be raised quite as early or aggressively as they would have otherwise been."
With Britain's economy steadily improving, the game on the pound for the past few months has been a to-and-fro on expectations for when the BoE will deliver a first, potentially modest, hike in borrowing costs. Money markets suggest many investors expect that to be before the end of this year. But many say Carney has muddied the waters by repeatedly pushing market expectations on timing in one direction and then the other.
The outlook for sterling looks positive though compared to the dollar, euro, yen or Swiss franc as markets still expect the BoE will be the first of the four major central banks to raise interest rates. After the financial stability report's publication, the market will turn its attention toward the release of US data later on Thursday, traders said. If that shows consumption ticking up along with prices in May, the dollar could get a boost.
"Beyond today's initial focus on macroprudential policies from the Bank of England it then turns quite quickly to the main release of the week, which is US core PCE deflator, the Fed's preferred measure of inflation," Robson said. "Markets are looking for 1.5 percent on a year-on-year basis. If you get 1.6 or 1.7 then I think you'd get quite an abrupt move in the short end of the US curve."