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Cable Slips as BOE Minutes Weigh

H.S. Borji
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The British pound weakened across the board on Wednesday, as the Bank of England voted unanimously to keep interest rates at record lows and expressed concerns about the impact of a stronger pound on inflation.

The pound weakened against all of its major peers. The GBPUSD plunged 140 pips to 1.4630. It would subsequently consolidate at 1.4677, the lowest level since mid-2010.

The pound also fell against the euro, as the EURGBP advanced nearly 1 percent to 0.7249.

Sterling weakened against the Japanese yen, as the GBPJPY tumbled more than 0.8 percent to 177.49.

A dovish Bank of England weighed on the pound on Wednesday, as weak inflation continued to give policymakers plenty of scope in keeping interest rates at record lows. The Monetary Policy Committee – the BOE’s interest rate-setting body – voted 9-0 in favour of keeping rates at 0.5 percent and the size of the asset purchase facility at £375 billion, the minutes of the March 4-5 policy meetings revealed on Wednesday. That was the third consecutive month officials had voted unanimously to keep rates unchanged. MPC members Martin Weale and Ian McCafferty had previously voted to raise interest rates.

“There was a risk that divergent monetary policy trends, as well as stronger prospects for growth in the U.K. than in the euro area, might continue to put upward pressure on the sterling exchange rate,” the minutes revealed on Wednesday.

Sterling increased around 2.5 percent against a basket of currencies over the past month, reaching its highest level in more than six years, the minutes said. The gains were mostly attributed to an appreciation of sterling against the euro of nearly 4 percent. The minutes also said the value of the pound would have increased much more rapidly had it not been for the uncertainty surrounding the upcoming general election.

The May 7 general election is expected to be the closest in decades, with no party on course to win a majority.

Annual inflation fell to a record low of 0.3 percent in January, the ONS confirmed last month. Annual CPI has been below the Bank’s 2 percent target for more than a year, with the latest slump reflecting a protracted decline in oil prices. Concerns about a global supply glut reemerged this week, pushing the price of US crude to six-year lows.

In economic data, UK unemployment fell to its lowest level in more than six years, although average earnings accelerated slower than forecast.

The number of people employed increased by 143,000 to a record high of 30.9 million. UK unemployment fell by 102,000 to 1.86 million in the three months through January, the ONS said. The unemployment rate held steady at 5.7 percent. The claimant count change for February declined by 31,000, as fewer Britons were unemployed.

Average earnings rose by 1.6 percent in the three months through January, as wages outstripped inflation by the widest margin since 2008. Still, the gain was smaller than forecasts. That was also true for average earnings including bonuses, which appreciated 1.8 percent compared to expectations calling for 2.2 percent.

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