CXR outlook not good The pound turned sharply lower Thursday after the Bank of England cut interest rates for the first time in seven years and announced a fresh round of stimulus measures intended to mitigate the effect of the U.K’s decision to leave the European Union.
Sterling GBPUSD, -1.5159% dropped to $1.3128, from $1.3325 late Wednesday in New York. Against the dollar, sterling looked set to mark its sharpest decline since the June 23 Brexit referendum roiled global markets, sending the pound spiraling lower.
Against the euro GBPEUR, -1.3723% the U.K. currency slipped to €1.1794 from €1.1951.
The bank cut its main interest rate to 0.25% from 0.5%, marking the rate’s lowest level in the central bank’s 322-year history. Gov. Mark Carney and fellow policy makers also revived a dormant U.K. government bond-buying program, announcing that expanded bond purchases will begin in September.
Read: Bank of England cuts key rate for first time in 7 years, expands QE program
Delivering a further message that the Bank of England plans on keeping a close eye on the economy as the U.K. severs ties with the EU, dubbed Brexit, the U.K. central bank said it may cut benchmark rates closer to zero later in 2016.
Boris Schlossberg, head of G-10 currency strategy at BK Asset Management, said although the market was expecting a rate cut, it was surprised at the level of dovishness communicated by the BOE. That dovishness put pressure on the British currency.
“The $1.30 level has been support—the Maginot Line—for the pound, and if we break that, we have a very reasonable chance of testing post-Brexit lows,” said Schlossberg.
At a news conference, Carney said that he feared that if the central bank hadn’t acted, the health of the U.K. market and economy would be in jeopardy.