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Pound Slides As BoE Stands Pat On Rate; Cuts Inflation Outlook

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The pound was modestly lower against its major counterparts in the European session on Thursday, after the Bank of England kept its key interest rate and asset purchases unchanged, but downgraded its inflation forecasts and projected a slower rate path than in the February inflation report.

The nine-member Monetary Policy Committee, led by Governor Mark Carney, held the bank rate unchanged at 0.75 percent, in line with economists' expectations.

The stock of corporate bond purchases was kept at GBP 10 billion and that of government bond purchases at GBP 435 billion.

In its Inflation Report, the bank raised the first-quarter growth projection to 0.5 percent from 0.3 percent forecast in February.

However, the quarterly growth rate is forecast to slow to 0.2 percent in the second quarter.

The central bank slashed its inflation forecasts for this year and next. The BoE expects inflation to be 1.6 percent in the fourth quarter of 2019 and 2 percent in the fourth quarter of 2020, down from earlier forecasts of 2 percent and 2.1 percent, respectively.

The minutes showed that the central bank now estimated rates to rise to "around 1 percent by the end of the forecast period," lower than in the February Report.

Survey data from IHS Markit showed that UK construction output rose for the first time since the start of the year in April, driven by a strong increase in residential work, but overall activity remained subdued amid weaker demand and optimism.

The IHS Markit/CIPS UK Construction Purchasing Managers' Index, or PMI, climbed to 50.5 from 49.7 in March. Economists had forecast a score of 50.3.

The pound held steady against its major counterparts in the Asian session, with the exception of the yen.

The pound was down 0.4 percent at 0.8597 against the euro, reversing from near a 4-week peak of 0.8567 hit immediately after the BoE decision. The pound was trading at 0.8576 a euro at yesterday's close. The currency is seen finding support around the 0.87 level.

Data from the Federal Statistical Office showed that Germany's retail sales fell for the first time in three months, defying expectations for a rise.

Retail sales declined 2.1 percent year-on-year in March, after a 4.4 percent rise in February, which was revised from 4.7 percent. Economists had expected sales to rise 2.9 percent.

The U.K. currency fell back to 145.23 against the Japanese yen, recording a 0.4 percent fall from a 2-week high of 145.88 touched at 3:45 am ET. The pair was valued at 145.37 when it closed deals on Wednesday. Continuation of the pound's downtrend may see it challenging support around the 142.5 area.

The pound lost 0.4 percent to a session's low of 1.3024 against the greenback, after rising to 1.3080 at 3:45 am ET. The pair had ended Wednesday's trading at 1.3049. The pound is poised to challenge support around the 1.28 area.

Having risen to a 1-1/2-month high of 1.3326 against the Swiss franc at 3:45 am ET, the pound pulled back by 0.4 percent to 1.3278 after the BoE decision. Should the pound continues its downtrend, 1.31 is likely seen as its next support level.

Data from the Federal Statistical Office showed that Switzerland's retail sales dropped at the steepest pace in six months.

Retail sales fell a calendar adjusted 0.7 percent year-on-year in March, after remaining flat in February. Economists had expected a decrease of 0.4 percent.

Looking ahead, U.S. factory orders for March are scheduled for release in the New York session.

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