BLBG; Pound Rises Against Dollar as BOE Sticks to Asset-Buying Plan
The pound rose against the dollar after the Bank of England kept its main interest rate at a record low and said it will leave its bond-purchase program unchanged to weigh the pace of economic recovery.
The U.K. currency also strengthened versus the euro after the central bank’s nine-member Monetary Policy Committee said it will refrain from spending more than the 125 billion pounds ($205 billion) already pledged on buying assets, as predicted by all but three of 40 economists surveyed by Bloomberg. The pound also gained after an earlier report showed house prices unexpectedly increased in May by the most since 2002.
“Sterling is slightly stronger, it’s pretty balanced,” said Paul Robson, a currency strategist at Royal Bank of Scotland Group Plc in London. “There were fears that the Bank of England thought they outlook so bad they’d need to step up quantitative easing and the fact that they didn’t is a slight positive for sterling.”
The pound rose to $1.6381 by 12:07 p.m. in London, after trading as low as $1.6211 earlier, from $1.6317 yesterday. It strengthened to 86.43 pence per euro, from 86.79 pence.
The central bank, led by Governor Mervyn King, left the key rate at 0.5 percent today, while adding that the asset-buying program designed to lower consumer borrowing rates, will be maintained.
“The Committee expects that the announced program will take another two months to complete,” the bank said in a statement today. “The scale of the program will be kept under review.”
The pound gained 12 percent this year versus its U.S. peer as record low interest rates fueled consumer confidence and property values, stoking speculation Europe’s second-largest economy is rebounding from its deepest recession in three decades. Service industries unexpectedly expanded in May, a report showed yesterday.
Goldman Drops Bet
Goldman Sachs Group Inc. advised investors yesterday to drop bets the U.K. currency will extend gains against the dollar this year. “The U.K. has seen the strongest rebound in manufacturing and service sector PMIs of any major country so far,” analysts at the New York-based bank wrote.
U.K. house prices rose 2.6 percent from April, when they fell 1.8 percent, Lloyds Banking Group’s Halifax division said today. A Bloomberg Survey of 12 economists had forecast a 1 percent decline.
“I would suggest overseas money is a substantial force behind current and future housing data, especially given the added benefit of a cheap currency,” Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London, wrote in a note today.
Two-year U.K. gilts declined, pushing the yield one basis point higher to 1.13 percent. The yield on the 10-year security was little changed at 3.77 percent.
