Pound falls from 11-month high as Bank of England keeps rates unchanged

The sterling (above) dropped to its weakest level versus the euro this year as money markets showed traders pushed back expectations for a rate hike to November 2018 from August 2018 prior to the Bank of England's decision to keep rates unchanged.
The sterling (above) dropped to its weakest level versus the euro this year as money markets showed traders pushed back expectations for a rate hike to November 2018 from August 2018 prior to the Bank of England's decision to keep rates unchanged. PHOTO: AFP

LONDON (BLOOMBERG) - The pound slid from an 11-month high versus the US dollar and UK government bonds rallied after the Bank of England (BOE) voted to keep interest rates unchanged, while also cutting the country's economic growth forecast.

The sterling dropped to its weakest level versus the euro this year as money markets showed traders pushed back expectations for a rate hike to November 2018 from August 2018 prior to the decision. The BOE's Monetary Policy Committee (MPC) voted 6-2 in favour of keeping rates unchanged at a record-low 0.25 per cent. The central bank lowered its economic growth projections to 1.7 per cent this year from 1.9 per cent.

"The drop in sterling may suggest that some investors were betting on a surprise hawkishness from the meeting," said Credit Agricole SA strategist Valentin Marinov in e-mailed comments. "The markets will continue to bet on a hike in the second half of 2018, which could leave the pound back at square one."

The UK currency has rallied since the central bank's previous meeting in June, when three of the MPC's members voted in favour of a rate hike. Even so, the economic backdrop is showing signs of deterioration, with growth stuttering and wages struggling to match higher levels of pound-induced inflation.

The pound earlier climbed to its highest level versus the US dollar since September after IHS Markit's services Purchasing Managers Index, which measures the largest part of the economy, rose to 53.8 last month from 53.4 in June. The gauge was above the key 50 level that divides expansion from contraction and beat analysts' median forecast of 53.6.

On Thursday (Aug 3), it was trading 1.3167 versus the greenback as of 12.39pm in London, after rising to 1.3267, the highest since Sept 15. It was trading 1.7888 against the Singdollar.