Pound recovers in Asia after falling on rate cut talk

The pound edged up on Friday after tumbling in US trade following hints from the head of the Bank of England that it was ready to cut interest rates to stem fallout from Britain’s decision to quit the European Union.

A week after the unexpected Brexit vote, Mark Carney sought to reassure anxious investors that Threadneedle Street would step into financial markets.

“The economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,” he said in a speech Thursday in London.

Sterling plunged one percent Thursday after his comments, ending the day at $1.3314, having broken above $1.35 earlier in the day.

But on Friday in Tokyo it rose to $1.3327. The currency slumped to a 31-year-low of $1.3121 at the start of the week.

However, analysts were cautious about future movements owing to uncertainty around Britain’s ability to reach a divorce agreement, while at the same time its ruling Conservative Party struggles to find a successor to Prime Minister David Cameron when he steps down in September.

“The pound slightly recovered today due to rallies on selling, but we can’t find many fundamental factors to support it,” said Yosuke Hosokawa, head of the FX sales team at Sumitomo Mitsui Trust Bank.

“For now, the pound is still on a downward slope.”

The yen gained ground against the dollar after tumbling Thursday on speculation the Bank of Japan will expand its already massive stimulus programme, while the greenback was also hurt by waning US interest rate hike expectations.

“It’s hard to continue selling the yen against the dollar as the prospect for a US rate hike is now uncertain,” Hosokawa said.

Shortly before markets opened, official data showed spending by Japanese households fell in May while inflation dropped for a third straight month, dealing another blow to Tokyo’s war on deflation.

They were the latest in a string of figures — including an earlier drop in factory output — to raise concerns about Japan’s prospects.

Also Friday, the Bank of Japan’s closely watched Tankan survey showed confidence among small firms and non-manufacturers worsened, while major manufacturers’ sentiment was stuck at its lowest levels in more than three years ago.

The dollar changed hands at 102.90 yen in Tokyo against 103.23 yen in New York, while the euro was at $1.1103 and 114.26 yen, compared with $1.1104 and 114.63 yen.