The pound touched its lowest level in 11 weeks against the dollar after investors lowered their forecasts of UK interest rate hikes after the Bank of England trimmed its wage growth outlook.
The UK currency fell 0.7 percent to trade at $1.6701 as of 3:36 p.m. in London and also hit $1.6698, its weakest level since May 29. The sterling advanced 0.7 percent to 80.11 pence per euro and touched 80.20, its lowest level since June 30.
The pound also skidded against its peers after BOE Governor Mark Carney said that interest rates will only be increased on piece-meal basis and on a limited scale. Traders extended their expectations of the first interest rates by 3 months to May next year after BOE officials disclosed that they will place more emphasis on wages when deciding to hike the rates.
Data released on Wednesday indicated that wages posted their first drop since 2009 despite the fact that unemployment rate declined. The Office for National Statistics reported that earnings declined 0.2 percent in the quarter through June, the first drop since 2009. Unemployment rate plunged to 6.4 percent from the previous reading of 6.5 percent, in line with economists’ estimates in a Bloomberg News poll.
BOE officials, in the quarterly Inflation Report that was released today, estimate annual wage growth in the fourth quarter to average 1.25 percent. This is 2.5 percent lower from its previous estimate announced in May.
Yield on the 10-year gilts fell 0.04 percentage point or four basis points, to 2.44 percent after earlier touching 2.40 percent on August 8, its weakest level in 12 months. Yield on the 2-year gilt fell 10 basis points, the most since May 3, 2011, to 0.70 percent. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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