Pound Falls As BoE Holds Rate, QE Steady

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The pound depreciated against its key counterparts in the European session on Thursday, as the Bank of England kept its key interest rate and quantitative easing unchanged, suggesting that energy prices and other factors pushing up inflation will be transient.

The nine-member Monetary Policy Committee headed by Andrew Bailey unanimously decided to hold the benchmark rate at a record low of 0.1 percent.

The central bank retained the existing stock of corporate bond purchases at GBP 20 billion and the government bond purchases at GBP 875 billion, taking the size of total quantitative easing to GBP 895 billion.

Citing rapidly improving economic outlook and rising cost pressure, Andrew Haldane voted against the proposition to retain the size of government bond purchases. He sought to reduce the size to GBP 825 billion from GBP 875 billion.

The MPC said it did not intend to tighten monetary policy at least until there was clear evidence that significant progress was being made in eliminating spare capacity and achieving the 2 percent inflation target sustainably.

Inflation is expected to pick up further above the 2 percent target, owing primarily to developments in energy and other commodity prices, and is likely to exceed 3 percent for a temporary period, the bank said.

The committee expects the direct impact of rises in commodity prices on CPI inflation to be transitory.

The pound showed mixed performance against its major peers in the Asian session. While it held steady against the greenback and the euro, it rose against the franc. Versus the yen, it dropped.

The pound was down by 0.7 percent at a 3-day low of 0.8592 against the euro, after rising to 0.8534 at 5 pm ET. The pound had ended yesterday's trading session at 0.8537 against the euro. Further fall in the currency may challenge support around the 0.87 level.

Survey results from Ifo Institute showed that German business confidence improved more-than-expected in June.

The business climate index rose to 101.8 in June from 99.2 in the previous month. The score was expected to rise moderately to 100.6.

The pound lost 0.7 percent to hit a 2-day low of 153.83 against the yen. The pair was valued at 154.86 when it ended trading on Wednesday. Should the pound dips further, 152 is possibly seen as its next support level.

The pound dipped to a 2-day low of 1.2764 against the franc, marking a 0.7 percent fall from a 2-1/2-month high of 1.2857 it set at 4:15 am ET. At Wednesday's close, the pair was worth 1.2806. Next immediate support for the pound is seen around the 1.25 level.

The pound was lower by 0.5 percent against the dollar, at a 2-day low of 1.3891. The pair had finished Wednesday's deals at 1.3959. Extension of downward trading may see the pound finding support around the 1.37 region.

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