Pound Extends Slide After BoE Rate Cut

The British pound extended its early weakness against other major currencies in the Asian session on Friday, after the Bank of England lowered its benchmark rate for the first time since the onset of the coronavirus pandemic as inflation receded and the underlying growth momentum remained weaker.

Thursday, the Monetary Policy Committee, led by Governor Andrew Bailey, decided to cut the bank rate by a quarter-point to 5.00 percent from 5.25 percent, which was the highest since early 2008.

This was the first reduction in U.K. interest rates since March 2020.

The minutes suggested that the UK central bank will move more cautiously. Governor Bailey said, "We need to be careful not to cut rates too quickly or by too much."

The BoE said, "Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2 percent target in the medium term have dissipated further."

Meanwhile, the Asian stock markets traded lower, following the broadly negative cues from global markets overnight, amid concerns about the outlook for global economic growth after some disappointing economic data from the U.S., Europe and China that offset optimism about a near-term interest rate cut by U.S. Fed.

Data showed that U.S. manufacturing activity unexpectedly contracted at an accelerated rate in July and first-time claims for U.S. unemployment benefits rose to their highest level in almost a year last week.

Traders now await the U.S. Labor Department's closely watched report on employment in the month of July.

In the Asian trading today, the pound fell to nearly a 5-month low of 189.47 against the yen and nearly a 5-1/2-month low of 1.1086 against the Swiss franc, from yesterday's closing quotes of 190.27 and 1.1119, respectively. If the pound extends its downtrend, it is likely to find support around 188.00 against the yen and 1.09 against the franc.

Against the U.S. dollar and the euro, the pound dropped to 1-month lows of 1.2713 and 0.8487 from Thursday's closing quotes of 1.2739 and 0.8470, respectively. The pound may test support near 1.25 against the greenback and 0.85 against the euro.

Looking ahead, U.S. jobs data for July, factory orders for June and U.S. Baker Hughes weekly oil rig count data are due to be released in the New York session.