Sterling slipped against the euro and dollar on Thursday, after the Bank of England left interest rates at their record lows and indicated that it would cut them further later this year.
Even though the central bank said the initial hit from Britain's vote to leave the European Union was less severe than it had anticipated just last month, a majority of policy makers said they expected to support another rate cut in future meetings, the Bank of England's latest minutes showed.
Against the euro, sterling slipped 0.2 per cent to 85.12 pence. It fell to as low as $1.3180 against the dollar but had recovered to around $1.32 by mid-afternoon, leaving it down 0.3 per cent on the day.
The pound had hit a seven-week high of $1.3445 last week, more than 5 per cent above the three-decade low it had plumbed in July, as investors trimmed record short positions against the currency after a run of better-than-expected economic data. But it has since fallen almost 2 per cent.
‘Expensive’
“We think sterling actually now looks expensive from a short-term fair-value perspective,” said BNP Paribas currency strategist Sam Lynton-Brown.
“We’ve had this squeeze in short positioning, and that’s corresponded with sterling overshooting.”
The Bank of England last month cut interest rates to record lows and reintroduced an asset-purchase programme.
The bank said rate-setters were unanimous in their decision to keep the key interest rate at its record low of 0.25 per cent. They also voted 9-0 to keep the bond-buying programme target at £435 billion (€511 billion), and to continue with the plan to buy up to £10 billion worth of corporate bonds.
The next rate decision is scheduled to take place on November 3rd, when economists expect the Bank of England to cut borrowing costs by a further 15 basis points, to around 0.1 per cent.
Retail sales
Earlier in the day, data showed UK retail sales retail sales fell at a much slower pace than expected in August, which had sent sterling to $1.3243 before the publication of the Bank of England’s latest minutes.
“It would be wrong to be considerably more optimistic in view of the good economic data following the Brexit referendum,” said Esther Reichelt, currency strategist at Commerzbank.
“The uncertainty triggered by the outcome still prevails, and we see no reasons for a stronger pound.”
