Sterling fell against the dollar on Thursday, erasing some of the previous day's gains, as speculators bet the Bank of England may soon resume quantitative easing to help stimulate the economy. The pound rose on Wednesday after the central bank dashed expectations it could cut interest rates soon, despite downgrading its forecast for the recession-hit UK economy.
It looks more likely to restart its quantitative easing programme instead to support the economy, prompting speculators to resuming selling sterling on Thursday, traders said. Worries about the UK economy are likely to drag sterling down further especially against safe-haven currencies like the dollar and the Japanese yen, they added.
Sterling was down 0.3 percent at $1.5610, having earlier extended Wednesday's gains to reach a one-week high of $1.5686. It gained nearly 0.4 percent in the past two sessions. But the pound rose against the euro. The euro was down 0.3 percent at 78.75 pence - its lowest level in nearly a week - as the common currency came under broad pressure after some of the optimism that policymakers will take bold action to solve the euro zone debt crisis waned. Bids were cited at 78.60 pence.
BoE chief Mervyn King on Wednesday dampened what had been growing expectations of an interest rate cut, arguing that such a move would damage some financial institutions and be "counter-productive". This prompted market players to trim bets on a weaker pound but analysts expected sterling's rise to be short-lived, with a string of recent weak economic data keeping alive the prospect of more monetary easing.
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