British pound plunged against the US dollar for a second day on Friday to three-month lows, after Bank of England decided on July 4th to keep on hold base interest rate and monetary stimulus for a longer period than investors had initially expected.
GBP/USD tumbled to a session low and lowest point since March 13th at 1.4989 at 7:50 GMT, after which consolidation followed at 1.5006. The pair erased 0.45% for the day. Support was likely to be found at March 13th low, 1.4918, while resistance was to be met at current session high 1.5081.
On Thursday Bank of Englands Monetary Policy Committee put its base interest rate on hold at a record low 0.50% and the targeted level of asset purchases at 375 billion GBP. Pound reacted with a sharp decline yesterday after it was announced that monetary policy was not to be tightened as soon as most investors had expected, because economic indicators were still not convincing enough.
“Carney caught the market unawares, he was attempting to ensure that market expectations remain more focused on the U.K. economy than on the U.S.,” said Jane Foley, a senior currency strategist at Rabobank International in London, cited by Bloomberg. “He wanted to draw attention to the fact that the recovery is very nascent, very fragile. That leaves the pound weaker.”
“The implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy,” Bank of England said in its statement yesterday. The increase in market interest rates would weigh on the nation’s economic outlook”, the bank added.
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, in advance, 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.
Elsewhere, the sterling was lower against the euro, as EUR/GBP pair rose by 0.33% to reach 0.8597 at 8:55 GMT.
Ultimately, the pound has reduced its value by 2% this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-market nations. The euro has gained 4.3%, while the US dollar advanced 7%, Bloomberg imparted.
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