SYDNEY - Sterling stayed on the defensive early on Friday after unambiguously dovish comments from the Bank of England abruptly ended a tentative recovery in the currency.
Still trying to get over last week's decision by voters to leave the European Union, the pound quickly crumbled towards a 31-year trough after BOE Governor, Mark Carney, said more stimulus would probably be needed over the summer.
Sterling shed about two cents towards $1.3200 GBP=D4, bringing back in view Monday's trough of $1.3122. It has since found an uneasy truce just above $1.3300.
"Carney set up at least one rate cut," analysts at ANZ wrote in a note to clients, adding the market is fully priced for an easing by August.
The euro hit a fresh 2-1/2 year high of 83.83 pence EURGBP=R, and last stood at 83.30. Against the yen, sterling skidded to 136.20 GBPJPY=R, but held off a 3-1/2 year low of 133.65 set last Friday.
Traders said sterling is likely to remain choppy given the uncertainty surrounding the country's future outside of the EU.
The euro also came under a bit of pressure overnight, retreating from a one-week high of $1.1154 to as far as $1.1023. It last stood at $1.1105 EUR=.
Traders noted a Bloomberg report that the European Central Bank was thinking about looser rules for its quantitative easing programme had knocked the currency lower.
China is likely to wrest attention away from Europe as a batch of surveys on its manufacturing sector are due from 0100 GMT.
Any disappointment in the world's second biggest economy could weigh on commodity currencies like the Australian dollar, which has so far held up surprisingly well. -Reuters