* Sterling broadly weaker, hits 1-month low vs dollar on BoE
* Euro recovers from one-month low below $1.37
* Yen strengthens vs dollar and euro
(Adds U.S. PPI data, changes byline, dateline, previous LONDON)
By Daniel Bases
NEW YORK, May 14 The British pound fell from a
16-month high versus the euro and dropped to a one-month low
against the dollar on Wednesday after the Bank of England
surprised investors by saying it has no plans for near-term
"(The pound) had been the cat's meow up until this morning's
employment numbers and BOE inflation report. The market was
clearly positioned for a more aggressive MPC (Monetary Policy
Committee) and they didn't get that," said Lane Newman, director
of foreign exchange for ING Capital Markets.
The euro held modest gains against the dollar while slumping
to a 2-1/2 month trough against the yen, despite being helped by
steady purchases by Asian central banks keen to curb the
strength of their own currencies.
Central bank interventions such as those by South Korea and
China have stemmed the euro's losses in the face of growing
expectations the European Central Bank will loosen monetary
policy in June in an effort to stem deflationary pressures.
"It is a sell into the rally for the euro/dollar on the
assumption that the ECB goes for negatives rates and that
reverse managers will be looking to reduce some of their
euro-cash exposure to avoid deposits in negative interest
rates," said Sebastian Galy, senior currency strategist at
Societe Generale in New York.
Reuters on Wednesday quoted sources as saying the ECB was
preparing a package of policy options for its June meeting,
including cuts in all its interest rates and targeted measures
aimed at boosting lending to small- and mid-sized firms.
Unexpectedly higher U.S. producer price inflation data for
April, the largest increase in 1-1/2 years, caused some
short-lived dollar buying.
The euro rose above the $1.3700 level but retested it
three times where it now seems to be finding support. It was
last trading at $1.3716, up 0.1 percent.
Against sterling, the euro rose 0.37 percent to 81.75 pence,
rebounding from a fresh 16-month low of 81.26 pence.
The euro hit a 2-1/2 month low of 139.44 yen, down
0.45 percent. The greenback dropped 0.50 percent to 101.72 yen
Sterling lost ground after the Bank of England deflated
expectations it might raise interest rates in less than a year's
time, saying Britain's economic recovery was still in its early
stages. It also noted a strong bounce-back in the job market and
lowered its forecast for unemployment for the next couple of
Sterling hit a one-month low of $1.6753 after the
report was released, from around $1.6820. It was last trading at
$1.6785, down 0.26 percent.
In the report, the BoE noted that sterling appreciation was
putting downward pressure on inflation.
(Additional reporting by Patrick Graham and Anirban Nag in
London, Ian Chua in Sydney and Masayuki Kitano in Singapore;
Editing by Paul Simao)