Forex - Sterling at 3-week lows after BoE damps rate hike speculation

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Investing.com - The pound was trading close to three-week lows against the dollar on Wednesday after the Bank of England left its forecasts for growth and inflation largely unchanged and played down speculation over the timing of a possible rate hike.

GBP/USD hit lows of 1.6754, the weakest since April 16 and was last trading at 1.6773, down 0.30% for the day. The pair had risen to session highs of 1.6874 earlier Wednesday.

Cable was likely to find support at 1.6700 and resistance at 1.6881, Tuesday's high.


The drop in the pound came after the BoE said in its quarterly inflation report that it now expects economic growth of 2.9% in 2015, up from 2.7% in its February report, and said the rate of growth this year would remain unchanged at 3.4%.

The bank said it expects annual inflation to be close to its 2% target over the next two to three years if interest rates in the U.K. rise in line with expectations in financial markets.

The BoE's Monetary Policy Committee said there has been a "modest narrowing" in the amount of slack in the economy over the past three months but added that there is scope to further reduce slack before hiking rates.

"As set out in its February guidance, when the Committee does start to raise Bank Rate, it expects to do so only gradually and to a level materially below its pre-crisis average," the report said.

The bank also said the U.K. unemployment rate is expected to drop faster than previously forecast, falling to 5.9% in two years from 6.4% previously.

Sterling backed off session highs earlier after official data showed that the U.K. unemployment rate fell to a more than five-year low in the three months to March but average earnings slowed.

The Office for National Statistics reported that the U.K. unemployment rate ticked down to 6.8% in the three months to March from 6.9% in the three months to February, in line with expectations.

The claimant count fell by 25,100 last month, the ONS said, compared to expectations for a decline of 30,000 people. March's figure was revised to a drop of 30,600 people from a previously reported decline of 30,400.

The report said that average weekly earnings rose by 1.7% on a year-over-year basis in the three months to March, but excluding bonuses average earnings only rose by 1.3% during the quarter, and just 1.0% in March.

Elsewhere, the pound backed away from 16-month highs against the euro, with EUR/GBP up 0.37% to 0.8168, after falling to lows of 0.8127 earlier.

The euro came under renewed selling pressure on Wednesday following reports that the European Central Bank is preparing to cut rates at its next meeting in June.

Reuters reported that the ECB is preparing a "package of measures" including cuts to all interest rates, with negative rates on bank deposits and measures to bolster lending to small and medium size businesses.

The report came one day after the Wall Street Journal reported the Germany's Bundesbank would back monetary easing measures by the ECB if they were needed to keep low levels of inflation from becoming entrenched in the region.

Late last week the ECB indicated that it is "comfortable" with acting at its next meeting, after it has a chance to review the latest staff economic projections.

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