Sterling sank towards $1.30 on Friday, its weakest in three weeks, after stronger-than-expected jobs numbers in the United States strengthened speculation US interest rates would rise this year. The pound gained 0.15 percent to 84.76 pence per euro and had looked to be recovering after the Bank of England announced a package of new stimulus measures for Britain's slowing economy on Thursday, driving sterling to its biggest daily losses in a month.
But an hour after the US numbers, it was trading half a percent lower on the day at $1.3037, having touched a three-week low of $1.3021. "The key point for us after this data is that the US side of the equation has not so far come into play on sterling," said Sam Lynton-Brown, a strategist with BNP Paribas in London. "Given our more hawkish view that the Fed will deliver a rate hike in September, we think there is a lot of room on the downside and target $1.24 in cable."
The Bank of England's cuts on Thursday in its growth forecasts for next year and its hints of more easing to come underline the central case bank analysts have made for the pound to weaken since June's vote to leave the European Union. But with bets against sterling already at their highest on record, weakening the currency has proved difficult for speculative investors over the past month. It remains more than 2 cents above lows hit in early July.
Deputy Governor Ben Broadbent said on Friday the pound's drop after the Bank of England's decision was "relatively small" compared with its fall after the Brexit vote. "My feeling is the actions taken by the BoE will be viewed as considered, proactive and stabilising, which may stoke some confidence," said Tobias Davis, head of corporate treasury sales at Western Union in London.
The BoE's rate cut, the first since 2009, was widely expected. But economists had been divided on whether the central bank would revive its bond purchases and do more. In the event, it announced a series of steps, including new bond-buying, purchases of corporate debt and a targeted lending programme, or Term Funding Scheme (TFS), reminiscent of that run by the European Central Bank. The extent of the measures, and Governor Mark Carney's ruling out of negative interest rates, also suggests any further reduction of the return investors get for holding sterling will be limited. One advantage the pound continues to have over some of its major peers are higher gilt rates.
"While the forward guidance of more easing was quite explicit yesterday, it really only amounts to a signal of a further 15 basis points of easing down to 0.10 percent," said Derek Halpenny, European head of global market research at bank of Tokyo-Mitsubishi UFJ in London. "The key to describing this as an 'exceptional package of measures' is the potential size of the TFS. That measure incorporates the bulk of the balance sheet expansion and we can't be sure at this stage what the take-up will be."