Sterling weakens on BoE chief Carney's dovish comments

By Ahmed Aboulenein

LONDON, March 12 (Reuters) - Sterling fell against the dollar on Thursday after Bank of England Governor Mark Carney signalled he was in no rush to raise interest rates, disappointing some investors who were positioning for a hike in early 2016.

The pound rose against the dollar earlier after data showed that U.S. retail sales fell unexpectedly in February for a third straight month but Carney's comments drove it back towards 20-month lows in afternoon trade. [ID:nL5N0WE39Q}

Carney said he was in no rush to raise interest rates, saying the impact of sterling's rise and low global inflation could last for some time.

He added that the Bank expected to make limited and gradual increases in rates over the next three years as inflation returned to target within two years, even though it fell to 0.3 percent in January.

"Sterling underperformed today. Other currencies made progress against the dollar but the pound did not benefit from that and the comments from Carney could have contributed to that underperformance," said Ian Stannard, European head of FX strategy with Morgan Stanley (Xetra: 885836 - news) in London.

"The fact that Carney is warning about the impact of low inflation for a prolonged period of time is very important and consistent with what we believe will be a challenging environment after the election."

Having risen to $1.5029 after the U.S. retail sales data release, sterling fell to $1.4935 after Carney spoke, flat on the day against the broadly weaker dollar.

The pound had also risen against the dollar earlier in the day after data showed the UK's trade gap narrowed to its smallest since mid-2013 in January. The deficit shrank to 616 million pounds from 2.14 billion pounds in December, helped by a surge in exports of services and a plunge in oil prices.

A survey also showed British house prices rose more than expected in February, suggesting a growing shortage of properties might herald the end of a slowdown in the market.

"(The trade data) is another positive in the UK outperformance story," said Stephen Saywell, global head of FX strategy at BNP Paribas (Xetra: 887771 - news) in London.

"Like the U.S., the UK is likely to hike (interest rates) sooner rather than later, but there's still a lot of uncertainty about the timing," BNP Paribas's Saywell added. "If the market brings forward that timing, sterling continues to look pretty positive." (Additional reporting by Jemima Kelly; Editing by Andrew Heavens)