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British pound dips after Bank of England update

By AFP

Added 11th May 2017 07:50 PM

While noting that the pound cannot expect any immediate support from higher interest rates, analysts still detected a slightly more aggressive tone from the central bank on rate policy further down the road.

The pound came under pressure Thursday as investors digested a mixed bag of messages from the Bank of England's latest update, while the benchmark FTSE stock index trod water.

Sterling also suffered from news of falling industrial production in Britain and a widening of the country's trade deficit.

"The British pound is seeing some pressure versus the US dollar following the BoE's decision," analysts at Charles Schwab said.

The Bank kept leading interest rates unchanged and stimulus measures in place, but also crimped its economic growth forecasts.

While noting that the pound cannot expect any immediate support from higher interest rates, analysts still detected a slightly more aggressive tone from the central bank on rate policy further down the road.

Analyst Peter Ashton from trading firm Eiger FX said there was "arguably a more hawkish undercurrent emerging" at the BoE.

"Two of the key messages given out were that above target inflation can only be tolerated so much, and that rates could rise sooner than perhaps the markets are anticipating."

Ahead of the update, official data showed that UK industrial output slipped 0.5 percent in March to record a third monthly drop in a row.

Markets were reacting to "a ropey set of March data for the UK economy that point to a poor end to a disappointing first quarter", said Howard Archer, chief UK economist at IHS Markit.

Uncertainty festers

While the trade deficit hit a six-month high in March on rising imports, "there are signs that UK exports are benefiting from the weakened pound as well as decent global growth", Archer added.

Other European markets were also softer as "global political uncertainty continues to fester" as Charles Schwab analysts put it.

Wall Street was lower approaching midday in New York after a disappointing earnings report from Macy's pointed to weakness in the American retail sector.

Earlier, Asian stocks were having a good day, with energy firms providing strong support after a jump in oil prices, while the dollar firmed against the yen as a top Federal Reserve official reinforced expectations for further US interest rate hikes.

Both main crude contracts extended Wednesday's strong gains seen after data showed a drop in US inventories almost three times more than forecast, fanning hopes of rising demand as the American holiday driving season kicks off.

Traders have also been buoyed by hopes that OPEC and Russia's much-vaunted output cuts that started in January appear to be gaining traction, with the key producers also likely to extend the agreement past its end-June deadline.

And on Thursday, the OPEC cartel called on oil producers to make "collective efforts" to match supply and demand in the oil market in the face of rising output in the US.

All of which is welcome news for oil traders after last week's plunge in prices that came on the back of worries about rising US, Nigeria and Libya output, and a slowdown in key market China.

"We saw the biggest draw in inventories for the year last week with stockpiles down more than five million barrels," said Greg McKenna, chief market strategist at AxiTrader.

"And it looks like OPEC's production cut is finally biting," he added.

Key figures around 1545 GMT

New York - Dow: DOWN 0.4 percent at 20,861.80 points

London - FTSE 100: FLAT at 7,386.63 (close)

Frankfurt - DAX 30: DOWN 0.4 percent at 12,711.06 (close)

Paris - CAC 40: DOWN 0.3 percent at 5,383.42 (close)

EURO STOXX 50: DOWN 0.5 percent at 3,623.55

Tokyo - Nikkei 225: UP 0.3 percent at 19,961.55 (close)

Hong Kong - Hang Seng: UP 0.4 percent at 25,125.55 (close)

Shanghai - Composite: UP 0.3 percent at 3,061.50 (close)

Pound/dollar: DOWN at $1.2882 from $1.2941 at 2100 GMT

Euro/dollar: DOWN at $1.0867 from $1.0868

Dollar/yen: DOWN at 113.76 yen from 114.25 yen

Oil - Brent North Sea: UP 80 cents at $51.02 per barrel

Oil - West Texas Intermediate: UP 74 cents at $48.07

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