Sterling fell to its lowest in a week against the euro on Thursday after the European Central Bank stuck to its timetable for its stimulus programme and President Mario Draghi said an extension of its asset purchase plan had not been discussed. The pound also fell against the dollar, trading well below a seven-week high, with investors steering clear of the currency after Bank of England Governor Mark Carney kept the option of further monetary easing on the table.
Against the euro, sterling fell 0.8 percent to 84.95 pence per euro, its lowest since September 1 with losses accelerating after Draghi's comments. Earlier, there had been speculation that the ECB might tweak the rules of its asset purchase programme or redesign its plan so that it does not run out bonds that are eligible for purchases under its asset buying programme.
"We got the impression that the ECB Governing Council is satisfied with the effectiveness of its current monetary policy stance," said Thomas Kobel, economist at SEB. "We didn't see any strong signal that another easing of monetary policy is likely in the months to come." Against the dollar, sterling fell 0.4 percent to $1.3290 , having fallen for the first time in six days on Wednesday, and retreating from a seven-week high of $1.3445 struck on Tuesday.
It had weakened after Carney reiterated to lawmakers his view that the Bank of England remained ready to take "whatever action is needed" to help the economy weather the aftermath of the Brexit vote. "Clearly the market had expected more optimistic comments," said Esther Reichelt, currency strategist at Commerzbank. "Yes, the immediate shock of uncertainty did not arise, partially probably as a result of the BoE's market calming measures, and partially as weak sterling is fuelling the economy via exports and domestic tourism. However, the risks entailed by the exact details of Brexit remain an issue - for the BoE and the currency market."
On Wednesday, weak British manufacturing output data for July painted a less rosy picture of the aftermath of Britons' vote in June to leave the European Union, serving a reminder to investors about the risks lurking. The data were the first official figures to cover output solely for the period after the vote. Britain was plunged into political chaos in the weeks after the vote and before the formation of a new government under Prime Minister Theresa May. Nevertheless, sterling has rebounded against the dollar since hitting a three-decade low in July, with speculators trimming record high bets against it and sentiment bolstered by the recent slew of better-than-expected activity data.
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