FX Focus: Pound loses ground after Bank of England leaves rates unchanged

The pound slid on Thursday (15 September), after the Bank of England (BoE) opted to leave its interest rates unchanged at 0.25%, after lowering the benchmark to a historic low last month. Following the BoE announcement, sterling lost ground and by-mid afternoon it was down 0.20% against both the euro and the dollar, exchanging hands at €1.1738 and $1.3205 respectively.

Having halved the benchmark in August in response to worsening survey data following the country's decision to leave the European Union, the BoE vote unanimously – 9-0 – to leave rates unchanged at its latest policy meeting, as largely expected by analysts.

Officials from Britain's central bank, however, left the door open for a further rate cut this year, although it expects the UK economy to slow down less than forecast in the second half of 2016.

Andrew Sentance, senior economic adviser at PwC, said it was no surprise the Bank of England opted to keep interest rates on hold. "The economic data since their August decision has been broadly reassuring – including today's retail sales figures," he explained.

"There appears to have been a short-term confidence shock in July but that was linked to the political turmoil after the Brexit decision.

"Businesses and consumers appear to have taken the decision in their stride and are continuing very much as normal, though a period of slower growth is still likely because of the uncertainty surrounding the UK's future relationship with the rest of the EU."

Elsewhere, the dollar was on flat against the euro but slipped against the yen, as weakness in Asian markets saw investors flee to the safe haven that is the Japanese currency. The greenback was 0.18% lower against the yen, fetching ¥102.25, despite the uncertainty surrounding the central banks in both countries.

Both, the US Federal Reserve and the Bank of Japan (BoJ) will reveal their latest economic policy on 21 September, with analysts and investors uncertain over the outcome.

"The BoJ does not look to be in a rush to push for more quantitative easing (QE) because they want to see some results from their hard labour," said Naeem Aslam, chief market analyst at Think Markets UK.

"If you look at the inflation equation, there is little or no change and the market doesn't seem to believe that central banks can stimulate inflation through their QE."