Sterling fell to a near two-week low against the dollar on Thursday after the Bank of England kept interest rates on hold as expected, as investors who had bet on an outside chance of a hike cut positions. Traders said more downside stops are positioned below the pound's trough hit on February 25 as some investors pare expectations of aggressive rate hikes by the BoE this year.
The BoE, which left rates at their record low of 0.5 percent, is widely expected to increase borrowing costs in the coming months, to combat inflation that is running well above target. But investors who were pricing in chances of at least three 2011 rate hikes by the BOE have started to pare back some of those expectations. Sterling was down 1 percent against the dollar at $1.6044, its lowest since February 25 and more than 1 cent below where it was trading prior to the BoE announcement. Traders said more stops are positioned through $1.6025/30 on the downside.
The pound cut earlier gains to trade weaker against the euro with the single currency up 0.2 percent at 85.98 pence. The euro came under broad selling pressure after a cut to Spain's credit rating by Moody's highlighted the debt problems facing several euro zone countries. But expectations that the European Central Bank will raise rates before the UK central bank supported the euro against the pound.
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