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Pound slumps to four-month low against dollar Pound slumps to four-month low against dollar
(3 months later)
The pound has tumbled below $1.50 against the dollar as traders continue to scale back bets of higher interest rates in the UK, following the Bank of England's surprise statement on Thursday.The pound has tumbled below $1.50 against the dollar as traders continue to scale back bets of higher interest rates in the UK, following the Bank of England's surprise statement on Thursday.
Sterling slid to a four-month low of $1.4991, the weakest since mid-March, extending the sharp losses that followed Threadneedle Street's warning that markets had been wrong to price in rate hikes for the near future.Sterling slid to a four-month low of $1.4991, the weakest since mid-March, extending the sharp losses that followed Threadneedle Street's warning that markets had been wrong to price in rate hikes for the near future.
The pound could fall further still, analysts warned, denting Britons' spending power at the start of the summer holiday season. Sterling also weakened against the euro, though not as markedly.The pound could fall further still, analysts warned, denting Britons' spending power at the start of the summer holiday season. Sterling also weakened against the euro, though not as markedly.
The drop in sterling follows a statement from Mark Carney's first policy meeting that sought to quash investor expectations that the bank preparing to reduce monetary stimulus.The drop in sterling follows a statement from Mark Carney's first policy meeting that sought to quash investor expectations that the bank preparing to reduce monetary stimulus.
Under the chairmanship of the new governor, the monetary policy committee issued an unexpected statement to indicate that despite a rise in inflation there was no need for the sharp rise in yields on government bonds, known as gilts. That sent stock markets soaring and the pound tumbling, as traders and analysts debated whether Carney was more ready than previously thought to inject another lump of electronic cash into the economy under the Bank's quantitative easing (QE) scheme.Under the chairmanship of the new governor, the monetary policy committee issued an unexpected statement to indicate that despite a rise in inflation there was no need for the sharp rise in yields on government bonds, known as gilts. That sent stock markets soaring and the pound tumbling, as traders and analysts debated whether Carney was more ready than previously thought to inject another lump of electronic cash into the economy under the Bank's quantitative easing (QE) scheme.
Nawaz Ali, market analyst at Western Union Business Solutions, told Reuters: "An unusual statement with guidance was proof for sterling bears that Carney's arrival will mark the start of more monetary activism. "Investors have every reason to anticipate a change in monetary policy in the coming months, which will mean more downside for sterling."Nawaz Ali, market analyst at Western Union Business Solutions, told Reuters: "An unusual statement with guidance was proof for sterling bears that Carney's arrival will mark the start of more monetary activism. "Investors have every reason to anticipate a change in monetary policy in the coming months, which will mean more downside for sterling."
The European Central Bank (ECB) also took steps to quell investors' fears that it too was getting ready to tighten policy. Mario Draghi, head of the ECB, said on Thursday that the eurozone's central bank was taking unprecedented steps to give so-called forward guidance to reassure the markets that it had no plans to raise interest rates soon. The ECB, which is facing a new crisis in Portugal, had even discussed a rate cut, Draghi added.The European Central Bank (ECB) also took steps to quell investors' fears that it too was getting ready to tighten policy. Mario Draghi, head of the ECB, said on Thursday that the eurozone's central bank was taking unprecedented steps to give so-called forward guidance to reassure the markets that it had no plans to raise interest rates soon. The ECB, which is facing a new crisis in Portugal, had even discussed a rate cut, Draghi added.
Analysts say the pound and euro could both weaken further against the dollar in Friday afternoon trading, as expectations shift about the US central bank's own stimulus package when a US employment report comes in. Any upside surprises from the monthly US non-farm payrolls data will bolster expectations that the Federal Reserve will scale back its stimulus package and should boost the dollar.Analysts say the pound and euro could both weaken further against the dollar in Friday afternoon trading, as expectations shift about the US central bank's own stimulus package when a US employment report comes in. Any upside surprises from the monthly US non-farm payrolls data will bolster expectations that the Federal Reserve will scale back its stimulus package and should boost the dollar.
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