Sterling nurses its wounds

The British pound licked its wounds on Friday after the Bank of England cut interest rates and restarted its bond purchase programme.

Tokyo - The British pound licked its wounds on Friday, a day after the Bank of England not only cut interest rates but also restarted its bond purchase programme to shore up the economy, while the dollar held firm ahead of the US employment data.

The BoE cut rates to a record-low 0.25 percent from 0.5 percent as widely expected, pledged 60 billion pounds ($78.71 billion) in government bond purchases and launched schemes to buy high-grade corporate bonds and ensure banks pass on the full rate cut to borrowers.

The larger than expected measures pushed the British pound down 1.6 percent on Thursday, its biggest fall in a month. It last stood at $1.3130, about 0.2 percent above late US levels.

Still, having broken below its trend line support since its recovery from a three-decade low of $1.2798 hit on July 6, the currency is seen at risk of testing that low again, some analysts said.

The pound also eased to a three-week low against the euro, which rose to as high as 84.97 pence on Thursday and last stood at 84.80.

Against the yen, sterling fell to 132.72 yen, its lowest in more than three weeks.

With the BoE now out of the way, the market's focus is shifting to the US jobs report due at 12h30 GMT.

A strong reading there could help the dollar by reviving expectations that the Federal Reserve could raise interest rates later in the year, a scenario that had been completely discarded in the days that followed the shocks from Brexit vote.

Although surprisingly tepid second-quarter GDP growth figures published last Friday have dented the dollar, the greenback has been recovering slowly this week.

The dollar index edged back to 95.746 from Tuesday's five-week low of 95.003.

“Based on our analysis, the payroll growth in July is likely to be pretty strong. I expect a figure above 200 000. That should be positive for the dollar,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

Economists polled by Reuters expect a non-farm payroll increase of 180 000.

Average wage earnings, seen as a key factor in gauging the strength of any inflationary pressure, are expected to rise 0.2 percent.

As the dollar recovers, the euro eased to $1.1114 on Thursday and last stood at $1.1131, little changed on the day but down 0.3 percent on the week.

The yen held steady at 101.20 per dollar, not far from Tuesday's three-week high of 100.68 to the dollar.

REUTERS