LONDON (Reuters) - Sterling strengthened to a new five-month high against the dollar and headed for the $1.32 mark after the Bank of England indicated that any move to cut rates below 0% was not imminent despite the economy’s slow recovery from the coronavirus hit.
Much of the gain in the pound came shortly after the BoE announcement. The currency rose as much as 0.5% extending its run to a high of $1.3184, highest since March 9, before easing a touch to $1.3112, up 0.3% on the day.
Against the euro, it rose 0.4% at 90.14 pence, having earlier risen to a high of 90.10 pence.
“Overall, the BoE’s economic outlook is relatively less dovish than expected and the absence of a strong signal in favour of negative rates opens the door for further pound gains in the near-term,” MUFG analysts told clients.
The BoE said its policymakers unanimously voted to make no changes to its key interest rate, which stands at just 0.1%, and to its huge bond-buying programme.
The central bank said the British economy would not recover its end-2019 size until the end of next year, later than its earlier estimate of a recovery by the second half of 2021. But its projections for 2020 were less grim than in May.
While the central bank said it was reviewing the possibility of negative interest rates, it noted such a move would hurt banks’ balance sheets and that it had other instruments available.
Reporting by Thyagaraju Adinarayan; editing by Sujata Rao