Sterling stayed on the defensive on Friday after unambiguously dovish comments from the Bank of England abruptly ended a tentative recovery in the currency, while the euro wobbled on speculation of more stimulus in Europe.
Still trying to get over last week’s decision by voters to leave the European Union, the pound quickly crumbled towards a 31-year trough after BOE Governor Mark Carney said more stimulus would probably be needed over the summer.
Sterling shed about two cents towards $1.3200 GBP=D4, bringing back in view Monday’s trough of $1.3122. It has since found an uneasy truce just around $1.3340, about 0.2 percent above late U.S. levels.
“Carney set up at least one rate cut,” analysts at ANZ wrote in a note to clients, adding the market is fully priced for an easing by August.
The euro hit a fresh 2-1/2 year high of 83.845 pence EURGBP=D4, and last stood at 83.30.
Against the yen, sterling skidded to 137.25 GBPJPY=R, but held off a 3-1/2 year low of 133.65 set last Friday.
Traders said sterling is likely to remain choppy given the uncertainty surrounding the country’s future outside of the EU.
The euro also came under a bit of pressure overnight, retreating from a one-week high of $1.1154 to as far as $1.1023. It last stood at $1.1105 EUR=.
Traders noted a Bloomberg report that the European Central Bank was thinking about looser rules for its quantitative easing program had knocked the currency lower.
In addition, the market is also expecting the ECB to dole out stimulus eventually to support the flagging European economy.
“It’s been said that the euro zone is vulnerable to Brexit after the UK but the euro hasn’t fallen much perhaps because the impact is not just clear yet,” said Makoto Noji, senior strategist at SMBC Nikko Securities in Tokyo.
“But when you consider, the euro zone will have to take the brunt of rise in sterling so the economy will likely suffer. The market will probably start to price that in when things become clearer,” he said.
In Asia, economic data from the world’s second- and third- biggest economies was far from assuring, although currencies showed limited reactions.
Growth in China’s manufacturing sector stalled in June, an official survey showed, while a separate private survey focusing more on small and mid-size firms showed activity shrank more than expected.
The Australian dollar, often used as a proxy for China trade, stood flat at $0.7458 AUD=D4, having rebounded from last Friday’s low of $0.7305.
The Bank of Japan’s tankan corporate sentiment survey, largely conducted before the Brexit vote, showed the mood among the service sectors worsened, while a fall in core consumer prices deepened.
The yen slipped to as low as 103.40 to the dollar JPY= in early trade, extending its slide on the back of gradual recovery in risk appetite but it has bounced back to 102.83.
“The BOJ will be in focus this month. Today’s data isn’t strong. Whether the BOJ will ease or not, markets will likely to price in easing expectations,” said Kyosuke Suzuki, director of foreign exchange at Societe Generale in Tokyo.