CURRENCIES: Pound Slides After BOE Keeps Rates At Record Low, Cuts Wage Forecast

By Sara Sjolin, MarketWatch Features Dow Jones Newswires

Dollar rebounds slightly

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The pound moved sharply lower on Thursday after the Bank of England kept interest rates at a record low, and struck a downbeat tone on wages and economic growth.

Sterling slid to $1.3155, after hitting $1.3267 earlier in the day in the wake of a better-than-expected reading on U.K. services activity (http://www.marketwatch.com/story/uk-services-sector-grows-modestly-2017-08-03) in July.

Against the euro, the pound tanked to EUR1.1087 from EUR1.1153 on Wednesday, marking the lowest trading level since November last year.

The pullback came as investors assessed the BOE's rate decision, monetary policy statement and quarterly inflation report -- the "Super Thursday" trio of simultaneous releases. The central bank voted 6-2 to keep the key interest rate at a record low of 0.25% (http://www.marketwatch.com/story/boe-says-rates-may-rise-faster-than-markets-expect-2017-08-03), arguing that economic growth "remains sluggish in the near term as the squeeze on households' real incomes continues to weigh on consumption."

The central bank in its inflation report cut its 2017 gross domestic growth forecast to 1.7% from the 1.9% predicted in May. It also reduced its forecast for growth in 2018 to 1.6%, from 1.7%.

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he policy makers said U.K. wages are expected to "remain subdued" for the rest of the year, while also cutting its salary growth for 2018 to 3% from 3.5% expected previously.

"The market took the decision as pretty dovish, probably because the 6-2 vote suggests the MPC is a little further away from hiking than it was last time when it voted 5-3," said Neil Wilson, senior market analyst at ETX Capital, in a note.

He noted, however, that one of the hawks from the June meeting -- Kristin Forbes -- has been replaced with Silvana Tenreyro, who has a dovish record.

"But the bank said markets may be underestimating how far it needs to raise its benchmark rate over the forecast period. The MPC reckons on two hikes over the next three years, with the first coming in Q3 2018. All else being equal this ought to be supportive of sterling. So a dovish vote but a slight tightening bias is being displayed," Wilson said.

In other currencies, the dollar rebounded slightly on Thursday. The ICE Dollar Index gained 0.2% to 93.01 after trading around a 15-month low on Wednesday (http://www.marketwatch.com/story/dollar-languishes-at-15-month-low-with-adps-jobs-report-waiting-in-the-wings-2017-08-02). Traders are looking ahead to Friday's closely watched nonfarm payrolls report.

See:Ignoring Washington chaos, companies likely kept up strong hiring in July (http://www.marketwatch.com/story/ignoring-washington-chaos-companies-likely-kept-up-strong-hiring-in-july-2017-07-30)

The euro fell to $1.1845, down from a more-than-two-year high of $1.1857 late Wednesday in New York.

The dollar fell against the yen , buying Yen110.44 compared with Yen110.74 on Wednesday.

(END) Dow Jones Newswires

August 03, 2017 08:13 ET (12:13 GMT)