The comments from BoE Governor Mark Carney on a likely interest rate cut in summer has put downward pressure on the currency.
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The FTSE 100’s recovery was given extra legs by Bank of England governor Mark Carney’s signal yesterday that interest rates were likely to be cut in the summer.
Joshua Mahony, market analyst at trading platform IG, said: “The FTSE has broken to the highest level since August 2015 today, with the United Kingdom 10 year yield hitting an alltime low after comments from Mark Carney provided a new dovish bias upon monetary policy going forward”.
Against the dollar, sterling was 0.3 percent lower at $1.3277, not far from a 31-year low of $1.3122 struck on Monday, and on track for a second straight week of losses.
Carney said that over the coming weeks, the Bank will consider “a host of other measures and policies to promote monetary and financial stability”.
His comments fuelled further impressive gains on the FTSE 100 Index, which surged to its highest level since last December, but the rate cut prospects sent the pound sharply lower once more.
“The comments clearly signal that the Bank of England has made a decision to loosen monetary policy to support growth”, said Mr Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd.in London.
Speaking about the UK PMI reading, Rob Dobson, senior economist at Markit, said that whether the recovery in the manufacturing index will continue depends heavily on whether the current financial and political volatility spills over to the real economy.
As the pound to U.S. dollar pair weakened, Carney warned of a further decline in growth for the coming months.
Base rate is now at a record low of 0.5%, where it has been for more than seven years since being cut in response to the global financial crisis of 2008. The Brexit vote, which was looked upon by many as a crisis, has seen more policy uncertainty than economic uncertainty.
Sterling has fallen about 11 percent since the European Union vote.
Carney angered supporters of the Leave campaign before the referendum with his warnings about the consequences of a Brexit.
The Monetary Policy Committee of the Bank of England, meets every month to decide whether the interest rate should be changed.
‘European markets have finished the week as they finished the quarter, in a positive fashion as we come to the end of what has been a turbulent and historic week, ‘ said Michael Hewson, chief market analyst at CMC Markets UK.
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“The implications for monetary policy will depend on the relative magnitudes of these effects”, Carney said. “More positively, though, we think that the markets are right to recognise that Brexit, and especially some form of Brexit-lite, would not be as damaging as so many were arguing ahead of the referendum”, he said.
