Sterling touches its weakest level in almost a month

The pound fell for a fifth day after the Bank of England boosted bond purchases to combat Brexit fallout, helping spur gains in the dollar as the only major currency whose central bank is considering tighter monetary policy.

The British currency touched its weakest level in almost a month and ceded ground to all 16 of its major peers. As well as cutting interest rates for the first time since 2009, the central bank on August 4th exceeded economists’ expectations with an announcement that it would increase its gilt-purchase programme by £60 billion (€70.2bn) to £435 billion, starting this week.

“We could see some short-term weakness in the pound,” said Janu Chan, a senior economist in Sydney at St George Bank Ltd. “It was an extensive stimulus programme that the BoE announced. The economy has been hit in the short-term, and could face a minor recession.”

The pound fell 0.4 per cent to $1.2984as of 6:38am in London, after earlier touching $1.2978, the least since July 12th.

Sterling is poised to match its longest stretch of daily declines since May and has fallen 1.9 per cent this month, the worst performance among 31 major peers. St George’s Chan forecasts that the pound will rebound to $1.33 at year-end, predicting the UK economy will eventually recover without a further expansion of stimulus by the central bank.

The BoE bought £1.17 billion of gilts on the first day of its newly topped-up asset-purchase programme. The additional purchases are due to be completed in six months.

Bank of England policy maker Ian McCafferty said the bank should follow a gradual approach in how it responds to Brexit given that information on the UK economy's exact reaction to the vote "is still very limited". If the UK economy slows "in line with the initial survey signals, I believe that more easing is likely to be required, but that can easily be delivered in coming months," he wrote in The Times.

Governor Mark Carney has said more easing could come later this year.

– Bloomberg