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British pound falters on dovish BOE plan

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(Globalpost/GlobalPost)

The British pound fell sharply against both the dollar and the euro after the Bank of England Wednesday signaled a dovish approach to inflation amid efforts to bolster the economy.

While other major currencies were generally flat, the pound at 22H00 GMT Wednesday garnered $1.5541, down from $1.5661 at the same time Tuesday night.

The euro garnered 0.8654 pounds Wednesday night, up from 0.8587 pounds a day earlier.

On Wednesday, the Bank of England in its latest quarterly report reaffirmed its easy-money policy, even in the face of higher inflation.

The report predicted a "slow but sustained" recovery, but said the 12-month inflation rate would top three percent in the summer months.

Despite elevated inflation, BoE governor Mervyn King said the bank will stay the course as far as stimulus measures.

"Attempting to bring inflation back to target sooner would risk derailing the recovery and undershooting the target in the medium term," King said.

Christopher Vecchio, currency analyst at DailyFX, said the comments "suggest further sterling weakness ahead" and "more quantitative easing could be on the way."

Currency markets continued to look ahead to Friday's meeting of the G-20. The Japanese yen has remained volatile amid speculation that Japan's easy-money policies could draw criticism from the G-20.

"The Japanese yen will front and center at tomorrow's meeting and based on conflicting comments from policymakers, there is very little consensus on how hard the G20 should come down on Japan," said Kathy Lien, Managing Director at BK Asset Management.

She said one possible outcome from the meeting is a broad statement of principles that avoids any finger-pointing at Japan's exchange rate.

If the G-20 takes this tack, the dollar-yen relationship "could renew its rally but we will have to wait till Friday to know definitively," Lien wrote.

The dollar edged lower against the yen, trading at 93.46 Wednesday compared with 93.47 a day earlier. The euro also dropped against the yen, falling to 125.70 yen compared with 125.75 a day earlier.

The euro slipped against the dollar, dropping to $1.3450 from $1.3454 a day earlier.

The dollar rose against the Swiss franc, garnering .9173 compared with .9169 late Tuesday.

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http://www.globalpost.com/dispatch/news/afp/130214/british-pound-falters-dovish-boe-plan