"The British Pound has declined to the lowest level in two weeks against the Euro this morning, falling under the pivotal 1.20 level, while the UK currency also suffered losses against all but one of the 16 most actively traded currencies," says Adam Solomon at foreign exchange brokers Tor FX.
Signs that the economic recovery is losing momentum is weighing heavily on the Pound, after a report from Halifax Plc showed that UK house prices fell by the most in four month in June, indicating that the fragile recovery was more to do with a lack of property on the market rather than an overall improvement in sentiment.
Solomon goes on to say:
"The Bank of England's Monetary Policy Committee announced at midday today that UK interest rates would remain on hold for another month at 0.5%, despite calls from policy maker Andrew Sentance to raise borrowing costs from the record low.
"The MPC are being cautious in any plans to tighten monetary policy because of the fiscal tightening in the UK and the announcement of the most stringent budgetary cuts in a generation. The Pound is also 0.3% lower against the U.S Dollar today, dropping back towards $1.51, although is strong support at 1.50 may see a resumption of the upward trend on risk sentiment.
"There has been a wave of optimism engulfing the UK that the Coalition government would reduce the budget deficit while sustaining economic growth. The Pound subsequently rose 6% against the Dollar, after reaching a low of $1.42 on May 20th.
"The Bank of England governor Mervyn King endorsed the government's spending cuts, leading to speculation that policy makers would raise interest rates this year. That idea was further enhanced by Andrew Sentance who has been pushing for a rate increase, but investors will have to wait until later this month for the minutes from the committee meeting, in order to ascertain if any of his colleagues share his views."
