Forexpros – The euro fell to a three-day low against the pound on Wednesday, after the Bank of England Governor Mervyn King said that cutting U.K. interest rates could be more counterproductive than beneficial.
EUR/GBP hit 0.7891 during European late morning trade, the pair’s lowest since August 3; the pair subsequently consolidated at 0.7892, shedding 0.55%.
The pair was likely to find support at 0.7842, the low of August 3 and resistance at 0.7946, the session high.
Speaking following the release of the BoE’s quarterly inflation report, Governor King stopped short of ruling out a rate cut in the coming months, but indicated that such a move was unlikely, saying it would damage some financial institutions.
The BoE cut its forecasts for economic growth, saying the rate of growth in two years time was likely to be around 2% per year, significantly lower than its May forecast for growth of around 2.67%.
The central bank said inflation would be just below 1.7% in two years, with broadly balanced risks of it being above or below 2%.
Britain’s economy is likely to pick up modestly in the short term, the bank said, as a result of lower inflation and the effects of the bank’s asset purchase program and Funding for Lending scheme.
Governor King said the recession in the U.K. is not as bad as official data has shown, adding that growth has been “broadly flat” for the last two years.
Official data in July showed that U.K. economy contracted by 0.3% in the first quarter of this year and by 0.7% in the second quarter.
Governor King also said the debt crisis in the euro zone remained the key risk to the U.K.’s economy, adding that the overall outlook for the crisis has not altered over the last three months.
The pound erased early losses against the U.S. dollar, with GBP/USD advancing 0.29% to 1.5665, off a session low of 1.5574.
In the euro zone, official data showed that German industrial production fell 0.9% in June, more than forecast s for a decline 0.8%, following an upwardly revised 1.7% gain in May.
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