FX Roundup: Pound corrects as BoE revises UK growth forecasts

All of the central bank’s Monetary Policy Committee members voted in favour of maintaining the benchmark UK interest rate at 0.50%, and the asset purchase programme at £375bn, as anticipated by analysts.

However, many analysts had expected an 8-1 vote with MPC member Ian McCafferty voting in favour of a rate hike, which did not materialise.

In the Inflation Report released alongside the monetary policy announcement and the meeting minutes over a publication schedule dubbed as ‘Super Thursday’, the BoE cut UK economic growth forecasts.

The bank now expects gross domestic product to rise by 2.2% this year, down from 2.5% in its previous estimates. The BoE also slashed its growth forecasts for 2017 to 2.3%, down from an earlier estimate of 2.6%.

Furthermore, the Inflation Report warned that global growth had slowed further over the past three months, dragged by flagging emerging economies, particularly the slowdown in China.

Later in the session, BoE Governor Mark Carney said that there were some positive signs for the British economy, including a decline in the value of the pound.

"The pound sterling has fallen 3.5% since November. It's the largest decline between inflation reports since the [Global Financial] crisis," he added.

At 1700 GMT, pound was down 0.17% versus the dollar changing hands at $1.4578. Concurrently, the British currency also fell against the euro and Swiss franc by 0.92% and 1.29% exchanging at €1.302 and CHF1.290 respectively.

Meanwhile, Goldman Sachs said the pound could be set for a very sharp fall if Britons decided to leave the European Union and signs had already appeared that investors were beginning to price-in such a scenario.

Although an exit of the UK from the EU was not the global investment bank’s 'base case' scenario, the country’s still-elevated current account deficit might see the pound lose up to between 15%-20% of its value, it added in a note to clients.

Elsewhere, the dollar was down 0.98% against the yen at JPY116.7500. The euro was up 0.85% against the greenback exchanging at $1.1199.

On the commodity currency front, the Australian dollar rose 0.64% against the greenback exchanging at US$0.7215 while the New Zealand dollar rose 0.88% exchanging at US$0.6726. The greenback also fell 0.36% against the Canadian dollar exchanging at CAD$1.3732.

Kit Juckes, head of forex at Societe Generale, said, “The correlation between the dollar's trade-weighted value and the price of oil remains absurdly high. This correlation, which is far higher since 2003 than it was in the preceding 10-20 years, is largely a function of the way Fed policy has affected the global commodity cycle, but that doesn't make it less striking.”

“Yesterday's surge in US oil inventories was a little smaller than expected and that helped prices, keeping pressure on dollar longs.”

The dollar’s decline was echoed in Latin America, as the greenback fell against major regional crosses, including the Colombian (down 1.61%), Chilean (down 1.36%) pesos and Brazilian real (down 0.36%).