Pound and Dollar banknotes are seen in this picture illustration taken June 13, 2017. REUTERS/Dado Ruvic/Illustration
LONDON: The British pound dropped to this year’s lowest point against the euro Thursday in reaction to the Bank of England cutting its forecast for the UK economy as it left interest rates unchanged.
Sterling’s weakness, including against the dollar, in turn lifted London stocks as it gives many exporting companies a shot in the arm, boosting their international competitiveness.
Fawad Razaqzada, an analyst with Forex.com, said investors were disappointed that only two Bank of England monetary policy council members voted in favour of a rate hike -- suggesting that such a move is now far off.
”The market’s reaction was swift: the pound fell sharply and this helped to boost the FTSE 100,” he said.
”A dovish Bank of England update was helpful in sending the pound lower,” said Mike van Dulken, head of research at Accendo.
Blame Brexit
Craig Erlam, senior market analyst at OANDA, said the Bank’s attempts to keep rate hike expectations alive fell on “deaf ears” in the markets.
”While the conversation is still going on in the background and the numbers could easily change, it would appear a hike is further away,” Erlam said.
The downturn for the British currency may be far from over, said FXTM research analyst Lukman Otunuga, blaming “the unsavoury combination of uninspiring UK economic data in July and uncertainty surrounding Brexit talks”.
With political uncertainty, soft economic fundamentals and ongoing Brexit concerns weighing heavily on the British economy, “investors may start to question whether the BoE moves forward with raising rates in 2018”, he warned.
Corresponding strength in the euro, meanwhile, weighed on Germany’s DAX index of leading stocks which was down at the European close.
”Euro strength is the worry of the moment,” Marco Bruzzon, deputy managing director at Mirabaud Asset Management, told AFP.
Paris, meanwhile, closed higher, helped by a rebound in banking stocks after Wednesday’s sell-off.
Dow holds 22,000
Approaching midday in New York, the Dow index held on to territory above 22,000, a day after breaching that level for the first time and managing a sixth straight winning session for the index.
Shares in Tesla rose more than 7% after the company’s results encouraged investors to bet on the success of the Model 3 which the company began rolling just under a week ago.
US stocks have been lifted by second-quarter earnings broadly exceeding expectations, even as the greenback has come under sustained pressure from political uncertainty in Washington with the Trump administration mired in controversy.
A trigger for further dollar losses could come on Friday if US non-farm payrolls data for July disappoint and are seen lessening the odds of additional Fed rate hikes. - AFP
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