Sterling edged lower on Friday and was on track for its worst month versus the dollar since September after the Bank of England kept its policy unchanged.
The BoE kept the size of its stimulus programme at the same level and left its benchmark interest rate at an all-time low of 0.1% on Thursday. It also said inflation would surpass 3% as Britain’s economy reopens, but the climb further above its 2% target would only be temporary.
“GBP was an under-performer yesterday, hit by a BoE that was not quite as hawkish as traders had expected,” analysts at ING said.
Investors had hoped a more optimistic economic assessment from the BoE would push sterling back towards $1.40.
Sterling was down 0.1% versus the dollar at $1.3910 at 0824 GMT, and it was on track for its worst month against the greenback since September 2020.
Earlier this month, sterling dropped below $1.38 against a strengthening dollar after the U.S. Federal Reserve surprised markets by signalling it would raise interest rates and end emergency bond-buying sooner than expected.
News of the rapid spread of the Delta COVID-19 variant in Britain has also weighed marginally on sentiment.
England has delayed the final phase of its economy’s reopening by a month to July 19, aiming to use the extra time to speed up the country’s vaccination programme.
Britain recorded 16,703 new cases of COVID-19 on Thursday, the highest total since early February.
Investors are also watching a dispute between Britain and the European Union over post-Brexit trade in the British province of Northern Ireland.
This week, on the fifth anniversary of the Brexit referendum, the EU informally agreed to grant Britain a three-month extension to resolve the dispute over whether chilled meat products produced in mainland Britain can continue to be sold in Northern Ireland.
Versus the euro, the pound was 0.2% lower at 85.84 pence, but was still set for a weekly gain.
(Reporting by Joice Alves; Editing by Pravin Char)