Pound Declines Amid Risk Aversion

The pound weakened against its key counterparts in European trading on Thursday, as European shares declined amid weak corporate earnings, as well as on caution that the Bank of Japan won't deliver radical stimulus at the end of a two-day meeting ending Friday.

The UK gilts strengthened, diving down yields, on growing hopes that the Bank of England would lower rates next week or resume quantitative easing to contain the fallout of the Brexit vote. The yield on the benchmark 10-year gilts fell more than 3 basis points to a record low of 0.707 percent and the yield on 30-year bond dipped nearly 2 basis points to 1.593 percent. Yields move inversely to bond prices.

Investors digested the Federal Reserve's latest policy statement that sent out mixed messages on the U.S. economic outlook and future moves on interest rates.

The Fed didn't make any changes to interest rates but left the door open for increases later this year, saying that economic activity has been expanding at a moderate rate and risks to the economic outlook have diminished.

In economic front, data from the Nationwide Building Society showed that U.K. house prices increased more than expected in July after Britons voted to leave the European Union.

Annual growth in house prices increased to a 4-month high of 5.2 percent in July from 5.1 percent in June, while it was expected to ease to 4.5 percent.

The pound has been trading lower against most major rivals in Asian deals, amid rising risk aversion, as the Fed sounded upbeat over economic performance and hinted about gradual rate hikes in the coming months.

Easing from an early 6-day high of 1.3248 against the dollar, the pound edged down to 1.3160. The next possible downside target for the pound-dollar pair is seen around the 1.30 zone.

The pound slid to a 2-week low of 0.8437 against the euro and a 2-day low of 1.2945 against the franc, off its early highs of 0.8358 and 1.3049, respectively. The pound is likely to locate support around 0.86 against the euro and 1.27 against the franc.

The pound remained lower against the Japanese yen with the pair trading at 137.81. On the downside, 136.00 is likely seen as the next support level for the pound-yen pair.

Looking ahead, at 8:00 am ET, German flash consumer prices for July are set for release.

The U.S. weekly jobless claims for the week ended July 23 and advance goods trade data for June will be out in the New York session.