MN: Pound sinks after Bank of England cuts rates, restarts bond buying
By Sara Sjolin and Mark DeCambre, MarketWatch , Hiroyuki Kachi
Short pound positions were at record highs
The pound turned lower in early trade Thursday after the Bank of England cut interest rates for the first time in seven years and announced a fresh round of economic stimulus measures intended to mitigate the effect of the U.K's decision to secede from the European Union.
Sterling dropped to $1.3137, from $1.3325 late Wednesday in New York. Against the euro , the U.K. currency slipped to EUR1.1796 from EUR1.1951.
The BOE 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. BOE Governor Mark Carney also revived a dormant U.K. government bond-buying program, announcing that the expanded bond purchases will begin in September.
Read: Bank of England cuts key rate for first time in 7 years, expands QE program (http://www.marketwatch.com/story/bank-of-england-cuts-key-rate-for-first-time-in-7-years-expands-qe-program-2016-08-04)
Delivering a further message that the BOE 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 very reasonable chance of testing post-Brexit lows," Schlossberg.
At a news conference after the BOE's decision, 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.
Record shorts in sterling
Anticipation of an easing package had driven short positions in the pound to a record high ahead of the meeting.
In other currencies, the ICE dollar index was up 0.3% to 95.8630, spiking after the BOE decision. Dollar traders are mostly awaited the release of the closely watched nonfarm-payrolls report on Friday.
The euro slipped to buy $1.1121, slightly down from $1.1149 late Wednesday.
The yen
Earlier Thursday, the yen briefly dropped against the dollar after remarks by a Bank of Japan senior official. Deputy Gov. Kikuo Iwata said the central bank has no preset agenda (http://www.marketwatch.com/story/no-preset-agenda-for-monetary-easing-boj-deputy-says-2016-08-03) for its "comprehensive assessment" of its current policy scheduled at the next policy board meeting in September.
"The comments gave a sense of disappointment to some extent," said Yuzo Sakai, manager of FX business promotion at Tokyo Forex & Ueda Harlow.
The greenback most recently was trading at Yen101.23 compared with Yen101.25 late Wednesday in New York.
-- Megumi Fujikawa and Hiroyuki Kachi contributed to this article.
