BLBG: Pound Rises Against Dollar on Bank of England Interest-Rate Speculation
The pound strengthened against the dollar for the first day in three as investors bet the Bank of England will raise borrowing costs before the U.S. Federal Reserve.
Sterling was little changed versus the euro. The central bank will raise its key interest rate by June, according to sterling overnight index average forwards data from Tullett Prebon Plc, while futures trading in the U.S. shows the Federal Reserve is likely to keep its key rate close to zero until next year. Policy makers will maintain the U.K. rate at 0.5 percent on March 10, according to all 61 economists surveyed by Bloomberg News.
“The yield differential is the major driver of currency markets at the moment,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubihsi UFJ Ltd. in London. “My sense is that the pound could strengthen into the Bank of England meeting, but it’s unlikely to extend those gains after the meeting unless the BOE surprises and tightens policy.”
The pound rose 0.4 percent to $1.6329 as of 10:12 a.m. in London, and was 0.1 percent stronger at 85.86 pence per euro, and 134.04 yen.
Rate increases will probably come at a “slow and steady” pace starting in the next quarter to prevent soaring inflation from becoming embedded in the “national psyche,” the Confederation of British Industry said today.
Britain’s currency has gained 4.1 percent against the dollar this year amid speculation the central bank will need to raise interest rates to curb inflation. Policy maker Andrew Sentance has led calls for the central bank to increase borrowing costs since June and last month voted for a 50 basis- point increase.
Inflation Rising
Soaring food and energy costs helped to push inflation to 4 percent in January, the most since November 2008.
U.K. 10-year government bonds fell, pushing the yield up four basis points to 3.67 percent. Two-year note yields were one basis point higher at 1.41 percent.
The number of real-estate agents and surveyors saying U.K. house prices fell exceeded those seeing gains by 26 percentage points in February, the Royal Institution of Chartered Surveyors will say tomorrow, according to the median estimate of 16 economists surveyed by Bloomberg News.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
