LONDON—The pound eased Thursday as the Bank of England left interest rates unchanged as expected Thursday, while the euro slipped against the dollar on renewed sovereign-debt concerns.
The pound fell under $1.61 against the dollar in early trading and remained there through the European session. The BOE provided little detail on its statement, giving investors little to go on to push the pound one way or another.
Market pricing suggests a rate increase from the all time low of 0.5% by the summer. "The market continues to fully price in a rate hike for the May meeting and increasingly for the April meeting, which seem overdone in our view," BNP Paribas analysts said in a research note.
The minutes of today's decision, due for release on Feb. 23, will be closely read to see if the rate-rise camp got further support. In January, there were two votes for a rate increase as Martin Weale joined hawk Andrew Sentance.
The BOE is due to release its projections for growth and inflation on Feb. 16. Barclays Capital chief U.K. economist Simon Hayes said he expects a somewhat more hawkish tone, but that any change from the BOE's previous forecasts in November would have to be very significant to justify tighter policy in the very near future. "We remain optimistic about prospects for the pound for the year as a whole but that is not, and was not, based on an expectation of tighter policy anything like this early," said Paul Robinson, currency strategist at Barclays Capital.
The euro slipped in early trade to an intraday low of $1.3615 on a new bout of concerns over sovereign debt in the euro zone, but pared losses and recently traded at $1.3632. Weaker equities and widening bond yield spreads between German and Portuguese government bonds have renewed concerns about sovereign debt.
Demand for the euro had also been dented by speculation that German central bank chief Axel Weber won't seek to lead the European Central Bank after Jean-Claude Trichet departs. Mr. Weber is widely perceived as hawkish on inflation and it's believed the ECB may lose some of its hawkish bent if he doesn't succeed the Frenchman.
The euro found some support from the ECB, which was reported to have been buying Portuguese bonds in the secondary market. This helped the yield spread narrow to around 0.12 percentage points from 0.32 percentage points.
Elsewhere, the Norwegian krone tumbled after inflation numbers for January came in a lot weaker than expected, leading the euro to its highest level against the krone since Jan.31 at 7.9425 kroner.
The euro was at $1.3636 from $1.3734 late Wednesday in New York. The dollar was at 82.73 yen from 82.37 yen, while the euro was at 112.82 yen from 113.08 yen. The British pound was at $1.6051 from $1.6104. The dollar was at 0.9636 Swiss francs, from 0.9578 francs.
The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 78.081 from 77.610.
