Pound falls before services data as market awaits BOE decision

[LONDON] The pound dropped before a report economists forecast will confirm that UK services contracted last month, adding to speculation the Bank of England will ease policy to head off an economic slowdown.

Sterling fell against most of its 16 major peers, paring Tuesday's gain versus the dollar which was the biggest in three weeks.

Markit Economics' purchasing managers' index of services, the largest part of the UK economy, dropped to 47.4 in July, according to the median forecast of analysts in a Bloomberg survey.

The BOE will announce its latest policy decision Thursday, with all but two of 52 economists in a separate Bloomberg survey predicting the central bank will cut interest rates for the first time since March 2009.

"The focus is on the Bank of England, and today's services PMI will crystallise expectations heading into it even though it is a final update to the flash reading we had a couple of weeks ago," said Ned Rumpeltin, the London-based European head of currency strategy at Toronto Dominion Bank.

"We are looking for a comprehensive package of easing measures that should fuel an additional broad-based depreciation of the pound."

The pound fell 0.3 per cent to US$1.3322 as of 9:12 am in London, having climbed 1.4 per cent on Tuesday, the biggest gain since July 14. It's still up from a 31-year low of US$1.2798 reached on July 6. Sterling weakened 0.1 per cent to 84.13 pence per euro.

BLOOMBERG