British pound fell to five-week lows against the US dollar on Thursday after Bank of England introduced no changes in monetary policy but struck a dovish tone in its statement, concerning interest rates.
GBP/USD plunged to a new session low and lowest point since May 29th at 1.5075 at 11:16 GMT, after which consolidation followed at 1.5090. Support was likely to be found at May 28th low, 1.5025, while resistance was to be met at July 2nd high, 1.5236.
Bank of England left base interest rate on hold at 0.50% at its meeting today and kept the size of stimulus at 375 billion GBP. The bank said economic data over the past few months was consistent with economic recovery, set out by BoE in its May inflation report, but yet, confirmed that a significant increase in interest rates would weigh on the growth outlook. “In the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy”, the bank said, cited by Investing.com. In its statement BoE said that economic recovery was on its way and annual inflation rate was expected to decrease to the targeted rate of 2%. Monetary policy was not to be tightened as soon as most investors had expected, because economic indicators were still not convincing enough.
“The statement is probably a little bit more dovish than the market was expecting, pushing back on the rise in longer-term interest rates and suggesting that monetary policy will remain accommodative for some considerable time,” said Paul Robson, a senior currency strategist at Royal Bank of Scotland Group Plc in London, cited by Bloomberg. “This leaves sterling vulnerable against the dollar and the euro.”, he also added.
Sterling tumbled against the euro as well, with EUR/GBP down by 1.29% to 0.8622.
Meanwhile, market players began focusing on the US non-farm payrolls report due on Friday, in search for clues about the future of FED’s stimulus policy. A report on Wednesday showed that the private sector in the United States added 188 000 job positions in June, more than expectations of an increase by 160 000.
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