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Sterling falls to a one-month low on BoE's cautious forward guidance

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Sterling falls to a one-month low on BoE's cautious forward guidance

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By Polina Ivanova LONDON (Reuters) – Sterling extended losses on Friday, slipping to a one-month low against the dollar, as the Bank of England’s plans to take a “very gradual” approach to raising interest rates sent investors rushing to exit positions. The central bank said it expected Thursday’s rate hike, the first in over a decade, would be followed by just two more quarter-point increases over the next three years. That led to the pound’s biggest one-day drop in almost five months. Monthly data on Britain’s dominant services industry, expected at 0930 GMT on Friday, may provide more clues about the health of the economy and the outlook for further hikes. Last month’s services purchasing managers’ index (PMI) produced a better-than-expected result, showing the sector picking up to 53.6 in September, easily above the 50 level that separates growth from contraction. But analysts questioned the importance of the upcoming numbers for sterling after the BoE’s announcement. “The signals that we got from the BoE yesterday was that it’s probably a ‘one-and-done’, and I doubt if a single data release can really change that view in the market,” said Jane Foley, senior currency strategist at Rabobank. “A lot of speculation has been put to bed by the tone of the BoE yesterday, meaning that even if this is a stronger-than-expected figure, it’s not going to excite the pound that much,” she added. Sterling fell 0.1 percent to $1.3040 <GBP=D3> on Friday, its lowest since Oct. 6, extending losses from the previous session when the BoE decision sent the pound plummeting almost 2 U.S. cents in just three minutes. It was trading flat against the euro <EURGBP=D3> on Friday, after suffering its worst one-day drop on Thursday against the single currency since a “flash crash” on Oct. 7, 2016, when a sudden plunge briefly shaved a tenth off the pound’s value. Others struck a somewhat more optimistic note. “We are of the view that the details of the (BoE’s) Inflation Report suggest that the Bank will maintain the stance of a gradual hiking cycle and we would not be surprised if future communication by the BoE strengthens this point,” Barclays analysts wrote in a note to clients. On a trade-weighted basis, sterling <=GBP> held at a 1 1/2- week low of 77.0. BoE Deputy Governor Ben Broadbent said on Friday that the Bank’s signal that it may need to raise interest rates two more times is “not a promise”, responding to a question about the BoE’s previous attempts to signal the likely path for interest rates, which were knocked off course by twists and turns in the economy.

(Reporting by Polina Ivanova, editing by Larry King; Editing by Saikat Chatterjee and)
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