SYDNEY (Reuters) - The British pound nursed losses on Wednesday after comments from the Bank of England governor cooled expectations for an interest rate hike this year, while its G3 counterparts drifted in well-worn ranges.
Surprisingly less hawkish comments from BoE Governor Mark Carney saw the pound dip to a near one-week low of $1.6966, pulling away from a 5-1/2 year peak of $1.7064 set last Wednesday.
Carney said Britain’s economy still has plenty of slack to work through and that financial markets underestimate how much uncertainty there is in the economy.
The impression he left was a dovish one and rather hard to reconcile with his abrupt and hawkish change of policy signalling at a speech earlier this month, JPMorgan analysts said.
“This leaves GBP confused, and naturally trading on the back foot given the extent of bullish sterling positioning that needs confirmation of a more clearly hawkish shift in the BoE’s overall reading of the economy,” they wrote in a note to clients.
Also in the sights of profit takers, the Australian dollar slid to $0.9359 while its New Zealand peer fell to $0.8670. Earlier this week, the Aussie hit an 11-week high of $0.9445 and the kiwi scaled a seven-week peak of $0.8749.
G3 currencies continued drifting aimlessly as investors see all three major central banks keeping monetary policy loose for some time yet.
The greenback fetched 101.90 yen, having drifted on either side of 102.00 for the past two weeks.
Participants said unspent market energy was mounting up due to the rangebound trading.
“Power is building up and dollar/yen is likely to move significantly in either direction if a break does occur,” said Bart Wakabayashi, head of forex at State Street in Tokyo.
“Talk is that stop orders are building up steadily at 101.50 yen and 102.50 yen. Market players are currently trading within this narrow band to make a little change. Overall, the yen looks better bid unless the Bank of Japan comes up with its next easing plan.”
Japanese CPI will be released on Friday and any fresh signs of the country escaping deflation are likely to further curb prospects for additional BOJ easing.
In the United States, an influential Federal Reserve policymaker, William Dudley, said on Tuesday the U.S. central bank can reasonably wait until mid-2015 to raise interest rates without risking an undesirable rise in inflation.
Latest euro zone data supported the case for the European Central Bank to stay dovish. A closely watched report showed German business sentiment weakened more than expected in June as companies fretted that tensions in Ukraine and Iraq would hurt their business.
The euro traded at $1.3603, well within this month’s $1.3503-$1.3678 range. Against the yen, the common currency appeared to have flatlined near 138.60 after drifting up from a four-month trough of 137.70 on June 16.
Editing by Shri Navaratnam and Eric Meijer