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 per cent at $1.3618. But afterwards it fell to trade 0.2 per cent 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, witsh the single currency rising 0.3 per cent 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.
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 pickup 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.
