The pound erased its recent gains against its key counterparts in the European session on Thursday, despite a 25 basis point rate hike by the Bank of England and hawkish remarks by Governor Andrew Bailey.
The nine-member Monetary Policy Committee decided to lift the bank rate by 25 basis points to 4.50 percent, the highest since 2008.
The bank said economic activity has been less weak than expected in February. The MPC judged that the path of demand is likely to be materially stronger than expected in the February Report.
The labor market is forecast to remain tighter than in the February Report in the near term. The jobless rate is estimated to remain below 4 percent until the end of 2024, before rising over the second half of the forecast period to around 4.5 percent.
Inflation is forecast to decline to a little above 4 percent at the end of two and three-year horizons and materially below the 2 percent target.
"The MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit," the bank said.
The BoE will "stay the course" to make sure inflation falls all the way back to the 2% target, Bailey said.
The pound touched 1.2514 against the greenback, its lowest level since May 3. The pound is seen finding support around the 1.23 level.
The pound was down against the yen, at near a 2-week low of 167.83. If the currency slides again, it may find support around the 163.00 area.
The pound weakened to a 2-day low of 0.8707 against the euro and a 6-day low of 1.1201 against the franc, off its early near 5-month high of 0.8660 and a 5-week high of 1.1277, respectively. The next possible support for the pound is seen around 0.90 against the euro and 1.11 against the franc.
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