Sterling slipped versus a broadly stronger dollar on Friday, after buying driven by speculation of a UK interest rate rise stalled in the absence of clarity from the central bank on when a hike might occur. Traders said selling by a European bank helped to push the pound to its weakest against the dollar since late January, while investors brushed off data showing a jump in wholesale inflation, which added to the case for higher interest rates.
The Bank of England kept rates on hold at 0.5 percent on Thursday. While the decision was widely expected, it prompted selling in sterling by some investors who had bet on a small possibility of a hike, which would increase the returns on UK assets for some investors.
With the BoE not due to release details of Thursday's policy debate and voting until later this month, analysts said the market continues to lack clarity on how close the bank really is to raising rates, as inflation pressures mount. Sterling is poised to end the week slightly lower against the dollar and the euro as its rally in the past month has petered out. It has gained since the start of the year as investors brought forward their bets on when the BoE would make its first tightening move.Markets now fully price in a 25 basis point rate rise by mid-year.
Sterling fell 0.8 percent on the day to $1.5963. Technical analysts said its break below $1.60 opened the door to a fall to around $1.5920, the 38.2 percent retracement of its December-February rally. The euro edged up 0.2 percent to a session high of 84.76 pence. Traders said the single currency was boosted by demand from a French corporate name. The pound failed to capitalise on data showing UK producer input prices rose 13.4 percent on the year in January, above forecasts for 12.6 percent, highlighting the ongoing pick-up in inflation.