LONDON: The pound fell on Thursday to approach four-month lows against the dollar after the Bank of England held rates steady as expected but cut its growth and inflation projections for this year and next.
Before the decision, sterling was up as much as 0.4 percent at $1.3618. But afterwards it fell to trade 0.2 percent lower on the day at $1.3521, not far above a four-month low of $1.3485 hit on Tuesday.
It also weakened against the euro, with the single currency rising 0.3 percent to 0.877 pence.
“I think the fact you have, as expected, downgrades to growth forecasts and more importantly perhaps, downgrades to the inflation story for 2019 and 2020 period has…been an influence on sterling,” said Sarah Hewin, chief economist for Europe at Standard Chartered.
Sterling has tumbled in recent weeks from its post-Brexit vote highs of close to $1.44 to $1.35, erasing its gains against the dollar for the year as investors unwound bets on a rate increase and British economic data came in worse than expected.
Data published earlier on Thursday appeared to confirm that, showing industrial output inched up by 0.1 percent month-on-month in March, slightly below analysts’ forecasts for 0.2 percent growth.
Bank of England Governor Mark Carney told reporters the bank’s earlier guidance on tighter policy had been conditioned on February inflation projections but the economy had not fulfilled those conditions.
He said the bank wanted to see a growth pick-up in coming months before raising borrowing costs.
Derivatives markets’ expectations of a rate rise later this year declined further after the BOE decision. They no longer price in a full 25 basis point rate rise in December, according to Reuters data.
“Inflation ‘cooling’ was a key word that caught our attention. Without inflation, absolutely no need to hike rates,” said Neil Jones, head of FX hedge fund sales at Mizuho.
“Not a surprise to see a no hike for 2018 being priced in. Pound should trend lower on this basis,” Jones added.
British government two-year bond yields fell three basis points.
Source: Brecorder
