Sterling failed to hold onto gains made after the Bank of England kept its policy steady on Thursday as lower-than-expected US jobless claims numbers helped push the dollar higher. In a widely expected move, the BoE's Monetary Policy Committee kept interest rates at a historic low of 0.5 percent and opted not to extend its bond purchases from the current 375 billion pounds.
Traders said the currency moved higher as some market participants had positioned themselves for an outside chance of an increase in quantitative easing but gains in sterling were short-lived as sellers emerged on rallies. The pound later slipped against the dollar after data showed that initial claims for state unemployment benefits in the United States fell to their lowest level in more than five years. Sterling was down 0.2 percent at $1.5503, retreating from the day's high of $1.5589 hit after the BoE rate decision and breaking through its 100-day moving average at $1.5521, which acted as initial support.
"UK data has been good but (US) jobless claims coming in lower, was net dollar positive and we have seen sterling/dollar come off," said Gavin Friend, currency analyst at National Australia Bank. The euro was down 0.3 percent at 84.44 pence but was still holding above a 3-1/2 month low of 83.98 pence hit on April 26. Strategists cited resistance around 84.80 pence, its 100-day moving average.
Sterling rose after better-than-expected British industrial and manufacturing output figures for March earlier in the day but lost some footing to the dollar after the US initial claims data. It found little support after a leading economic think tank said Britain's recovery had gathered pace in the three months to April. UK trade numbers due on Friday could move sterling only if they came in "wildly outside of expectations" NAB's Friend said.
Strategists said that this week's BoE meeting was less significant given markets would focus on the growth and inflation outlook in the BoE's Inflation Report next week. "From the market's perspective what is more important is the Inflation Report... if the growth figures are revised up a touch after the first quarter figures sterling could move a bit higher," said Kathleen Brooks, research director at FOREX.com.
Although Britain avoided a triple-dip recession last quarter and the BoE expanded its Funding for Lending Scheme (FLS) strategists said more easing by the central bank was still on the cards and this could continue to weigh on sterling. Incoming governor Mark Carney is widely expected to aggressively ease policy, especially if the British economy shows renewed signs of faltering.