LONDON, Aug 5 (Reuters) - Sterling steadied on Friday, recovering just over 0.2 percent against both the dollar and euro after the Bank of England drove its biggest daily losses in a month with a package of new stimulus for Britain’s slowing economy.
The Bank’s cuts in its growth forecasts for next year and its hints of more easing to come underline the central case bank analysts have made for the pound to weaken since June’s vote to leave the European Union.
But with bets against sterling already at their highest on record, weakening the currency has proved a hard road for speculative investors over the past month, and it remains more than 3 cents above lows hit in early July.
Deputy Governor Ben Broadbent said on Friday the pound’s drop after the Bank of England’s decision was “relatively small” compared with its fall after the Brexit vote.
“It looks like there are some fresh buyers out this morning,” said Tobias Davis, head of corporate treasury sales at Western Union in London.
“It is not aggressive. But my feeling is the actions taken by the BOE will be viewed as considered, proactive and stabilising, which may stoke some confidence.”
Sterling gained 0.3 percent to $1.3144 and 0.2 percent against the euro to 84.73 pence.
The BoE’s interest rate cut, the first since 2009, was widely expected. But economists had been divided on whether the central bank would revive its bond purchases and do more.
In the event, it launched a series of steps, including new bond-buying, purchases of corporate debt and a targeted lending programme, or Term Funding Scheme (TFS), reminiscent of that run by the European Central Bank.
The extent of the steps, and Governor Mark Carney’s ruling out of negative interest rates, also suggests any further cuts on the return investors get for holding sterling will be limited. One advantage the pound continues to have over some of its major peers are higher gilt rates.
“While the forward guidance of more easing was quite explicit yesterday, it really only amounts to a signal of a further 15 basis points of easing down to 0.10 percent,” said Derek Halpenny, European head of global market research at bank of Tokyo-Mitsubishi UFJ in London.
“The key to describing this as an ‘exceptional package of measures’ is the potential size of the TFS. That measure incorporates the bulk of the balance sheet expansion and we can’t be sure at this stage what the take-up will be.” (Editing by Hugh Lawson)
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