LONDON, May 14 (Reuters) - Sterling hit a three-month low versus the dollar on Wednesday after the Bank of England's quarterly report showed inflation staying above target for some time to come and economic growth slowing sharply.
The dilemma facing the Bank was illustrated by a UK jobs report earlier in the session, which showed the number of people claiming unemployment benefit rose for the third month running while average earnings growth posted a surprise jump.
Analysts say the two conflicting forces could limit the scope for future interest rate cuts, potentially further hurting the economy and thus sterling.
"What was a surprise in the last few days, is that inflation is worse than expected. And that, as a feedback, is negative for growth. That's what the Bank of England were highlighting," said Peter Frank, currency strategist at Societe Generale.
Sterling fell as low as $1.9366 <GBP=> after the report, its weakest since Feb. 20.
It trimmed losses later, piggy-backing on a broad dollar sell-off after news of an unexpected fall in U.S. inflation, to trade at $1.9425 by 1402 GMT.
The euro was at 79.50 pence <EURGBP=>, up 0.1 percent on the day and over eight percent higher since the start of the year.
BoE Governor Mervyn King said the fall in sterling will support the rebalancing of the economy, while the inflation report itself attributed some of the weakness in the currency in recent months to "a reassessment by investors of the sustainable value of sterling or an increase in the risk premium required for holding sterling assets".
"In my opinion, this is a repeat of the Governor's invitation to sell pounds back in November," Nick Parsons, head of markets strategy at nabCapital, said in a note to clients.
For more on the inflation report see [ID:nBOE001421]. (Reporting by Toni Vorobyova; editing by Stephen Nisbet) ((antonina.vorobyova@reuters.com; Tel: +44207 542 7958, Reuters Messaging: antonina.vorobyova.reuters.com@reuters.net))
Keywords: MARKETS STERLING/CLOSE
By Toni Vorobyova
LONDON, May 14 (Reuters) - Sterling hit a three-month low versus the dollar on Wednesday after the Bank of England's quarterly report showed inflation staying above target for some time to come and economic growth slowing sharply.
The dilemma facing the Bank was illustrated by UK jobs report earlier in the session, where the number of people claiming unemployment benefit rose for the third month running while average earnings growth posted a surprise jump.
Analysts say the two conflicting forces could limit the scope for future interest rate cuts, potentially further hurting the economy and thus sterling.
"Overall the report makes very bearish reading really as far as sterling is concerned with the higher inflation and the weak growth picture as well," said Ian Stannard, senior FX strategist at BNP Paribas.
Sterling fell as low as $1.9366 <GBP=> after the minutes, its weakest since Feb. 20. A move below $1.9335 would take it beyond this year's lows, to levels not seen since March 2007.
By 1030 GMT, the euro was at 79.55 pence <EURGBP=>, up 0.1 percent on the day and over eight percent higher since the start of the year.
BoE governor Mervyn King said the fall in sterling will support the rebalancing of the economy, while the inflation report itself attributed some of the weakness in the currency in recent months to "a reassessment by investors of the sustainable value of sterling or an increase in the risk premium required for holding sterling assets".
"In my opinion, this is a repeat of the Governor's invitation to sell pounds back in November," Nick Parsons, head of markets strategy at nabCapital, said in a note to clients.
For more on the inflation report see [ID:nBOE001421].
(Reporting by Toni Vorobyova; editing by David Christian-Edwards)
((antonina.vorobyova@reuters.com; Tel: +44207 542 7958, Reuters Messaging: antonina.vorobyova.reuters.com@reuters.net))
Keywords: MARKETS STERLING/MIDSESSION
LONDON, May 14 (Reuters) - Sterling hit a three month low versus the dollar, while UK stocks fell and gilts pared losses on Wednesday after the Bank of England's quarterly report showed inflation staying above target and growth slowing sharply.
Analysts say rising price pressures will limit the scope for growth-boosting interest rate cuts in coming months, potentially causing further problems for the economy.
"Overall the report makes very bearish reading really as far as sterling is concerned with the higher inflation and the weak growth picture as well," said Ian Stannard, senior FX strategist at BNP Paribas.
Sterling fell as low as $1.9366 <GBP=>, down around half a cent from levels seen before the inflation report.
At 0935 GMT, Britain's FTSE 100 <.FTSE> extended earlier losses, down 10.3 points, or 0.2 percent at 6,201.6.
The June long gilt future <FLGc1> pared losses, with the contract at 107/63, compared with 107.54 earlier. The June short sterling contract also pared losses, to stand at 94.220, down 2 ticks on the day. Before the BoE, it was at 94.215 <FSSM8>.
Earlier in the session, short sterling hit 94.200 - its lowest level since Oct. 21.
For more on the inflation report see [ID:nBOE001414].
(Reporting by London Markets Team)
((antonina.vorobyova@reuters.com; Tel: +44207 542 7958, Reuters Messaging: antonina.vorobyova.reuters.com@reuters.net))
Keywords: MARKETS BOE
LONDON, May 14 (Reuters) - Sterling extended losses towards an earlier three-month low versus the dollar on Wednesday after rises in UK earnings growth and in unemployment benefit claims highlighted the dilemma facing the Bank of England.
A slowing economy points to the need for interest rate cuts, while price pressures limit the scope for monetary easing.
For more on the UK jobs data see [nONS003525]
Sterling fell to around $1.9408 after the data, from $1.9450 previously. Earlier it hit a near three month low of $1.9392 <GBOP=>.
"The devil is in the details, and it is disapponting with regard to the jobless claims creeping higher than expectations," said Paul Mackel, director of currency strategy at HSBC Markets.
"It raises the debate over whether are we seeing a turning point in global market conditions ... and whether financial market weakness is starting to affect the UK labour market."
Next, the focus turns to the Bank of England's quarterly inflation report at 0930 GMT.
(Reporting by Naomi Tajitsu and Toni Vorobyova)
((antonina.vorobyova@reuters.com; Tel: +44207 542 7958, Reuters Messaging: antonina.vorobyova.reuters.com@reuters.net))
Keywords: MARKETS STERLING/JOBS
LONDON, May 14 (Reuters) - Sterling hit a near three-month low versus the dollar on Wednesday, with the Bank of England's inflation report eyed for any signs that price pressures will cap the pace of growth-boosting interest rate cuts.
Usually high inflation and the implication of on-hold or tightening monetary policy support a currency.
But for sterling the current worry is that not cutting rates fast enough may seriously hamper growth, so a surprisingly big jump in April consumer prices on Tuesday was seen as a negative.
A fresh sell-off is likely in case of high wage price growth data at 0830 GMT and any signals of slower rate cuts from the BoE's inflation report an hour later.
"They (BoE) have to make it clear that even though inflation is likely to rise quite sharply in the short-run, they are not going to allow it to become a medium-term problem. I think inflation is more of an issue for them than the weak activity data," said Paul Robinson, chief sterling strategist at Barclays Capital.
"Higher interest rates in themselves are positive for sterling. It's just that the UK economy seems to be in even more of a mess than it previously seemed to be, so net-net it's negative for sterling," he added.
Sterling fell to its lowest since Feb. 20, at $1.9392 <GBP=>. A move below $1.9335 would take it beyond this year's lows, to levels not seen since March 2007.
"With Bollinger bands and volatility on the increase we see a good chance of punching out a fresh yearly low not before long," SEB technical analysts said in a research note.
The euro was steady at 79.45 pence <EURGBP=> by 0733 GMT, depressed by a broad sell-off in euro/dollar due to stop-loss orders being triggered.
Average UK earnings growth is seen stable at an annual 3.7 percent in the three months to March, while the number of people claiming unemployment benefit is expected to be unchanged in April. If true, that would be only the second time in 1-1/2 years that the claimant count hasn't fallen on the month.
UK Finance Minister Alistair Darling said on Wednesday he was worried about inflationary pressure coming from oil and food prices, and that the economy is slowing due to the credit crunch.
The BoE has cut rates by 75 basis points since December, taking them to 5 percent. (Reporting by Toni Vorobyova; editing by Stephen Nisbet) ((antonina.vorobyova@reuters.com; Tel: +44207 542 7958, Reuters Messaging: antonina.vorobyova.reuters.com@reuters.net))
Keywords: MARKETS STERLING OPEN
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