2020.08.0608:13:00UTC+00Pound Appreciates As BoE Holds Rate, QE Steady

The pound gained ground against its key counterparts in the Asian session on Thursday, as the Bank of England kept its interest rate and quantitative easing unchanged, saying that the economic downturn is likely to be less severe than assumed in the May Report.

The nine-member Monetary Policy Committee voted to hold the interest rate at 0.10 percent, as widely expected.

The bank retained the size of the asset purchase programme at GBP 745 billion.

In the monetary policy report, the bank said jobs and incomes will be lower than they were before Covid-19 for some time.

The members judged that the existing stance of monetary policy was appropriate.

GDP is expected to have been over 20 percent lower in the second quarter of 2020 than in the fourth quarter of 2019. GDP is projected to exceed its level in the fourth quarter of 2019 until the end of 2021.

Employment has fallen since the Covid-19 outbreak. In the near term, the unemployment rate is projected to rise materially, to around 7.5 percent by the end of the year.

Consumer price inflation is forecast to fall further below the 2 percent target and average around 0.25 percent in the latter part of the year, largely reflecting the direct and indirect effects of Covid-19. In two years' time, inflation is forecast to be around 2 percent. Investors looked ahead to the UK construction PMI data, due at 4.30 am ET. The PMI is forecast to rise to 57.0 in July from 55.3 in June.

The pound showed mixed performance against its major peers on Wednesday. While it rose against the greenback and the yen, it fell against the franc and the euro.

The pound registered a 0.2 percent rise against the euro, approaching 0.9024. The pound was trading at 0.9045 a euro at Wednesday's close. Continuation of the uptrend may lead the currency to a resistance around the 0.88 region.

Data from Destatis showed that Germany's factory orders grew more than expected in June driven by both domestic and foreign demand.

Orders advanced 27.9 percent on a monthly basis, faster than the 10.4 percent increase seen in May. Economists had forecast a 10.1 percent rise for June.

The pound was up by 0.4 percent against the franc, at a 2-day high of 1.1960. The GBP/CHF pair was worth 1.1913 when it ended deals on Wednesday. Further rally may take the pound to a resistance around the 1.22 area.

After dipping to 138.38 at 5:00 pm ET, the pound turned higher against the yen, gaining 0.4 percent to 138.99. The pair had finished Wednesday's trading session at 138.48. Immediate resistance for the pound is likely seen around the 141.00 level.

The pound moved up to 1.3183 against the greenback, its biggest level since March 9. This recorded a 0.5 percent rise from a low of 1.3111 set at 5:00 pm ET. At yesterday's trading close, the pair was valued at 1.3114. The pound is likely to face resistance around the 1.34 region, if it gains again.

In today's economic releases, U.K. construction PMI for July is set for release in the European session.

The U.S. weekly jobless claims for the week ended August 1 are due in the New York session.