The pound rallied after the Bank of England refrained from boosting its bond-buying program and held its benchmark interest rate steady.
Sterling recovered from a two-week low as the BOE kept interest rates and quantitative easing unchanged in a rare early morning policy announcement. The central bank has already slashed interest rates to a record low 0.1% and pledged to buy 200 billion pounds ($250 billion) of debt.
The spread of the coronavirus in March drove the pound down to its lowest level since 1985, but it has since recovered some ground to trade around $1.25 over the past month. Still, the outlook for the U.K. economy remains bleak, with the Office for Budget Responsibility suggesting that a 13% contraction this year is plausible.
“The pound could regain some ground given the lack of significant dovish surprises,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole SA. “In terms of growth and inflation forecasts — things are looking pretty grim — but also as expected.”
Sterling rose 0.2% to $1.2369 as of 7:07 a.m. in London, after falling as much as 0.3% before the decision.
Investors will next turn to the gilt market open at 8 a.m. London time. June gilt futures are expected to open anywhere between 137.62 and 137.83 based on moves in bund and Treasury futures. This compares with Wednesday’s closing level at 137.71.
The publication of a briefing with BOE Governor Andrew Bailey will follow two hours later.
HSBC Holdings Plc. said prior to Thursday’s meeting that the institution had plenty of room to buy more bonds, if needed. The U.K. is set to issue the most debt on record this year to help finance coronavirus spending, including plans to raise 180 billion pounds of bonds between May and July.