BLBG: Pound Reaches One-Week Low Versus Dollar as Retail Sales Fall
The pound reached a one-week low against the dollar after reports showed retail sales declined in February and house prices fell, trimming expectations for rate increases this year.
Britain’s currency snapped a four-day decline versus the euro. Retail sales dropped 0.4 percent from January, when they gained 2.3 percent, a report from the British Retail Consortium and KPMG showed. Bank of England policy makers will maintain the U.K. interest rate at 0.5 percent on March 10, according to all 61 economists surveyed by Bloomberg News. The U.K.’s debt management office sold 800 million pounds ($1.29 billion) of index-linked bonds.
“Data this morning certainly hasn’t helped sterling,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Plc in London. “It is quite static at the moment as the pound tries to poise itself for the BOE meeting later this week.”
The pound was 0.2 percent lower at $1.6177 as of 11:51 a.m. in London, after touching $1.6166, the least since Feb. 28. It has fallen against the greenback on each of the last four days. It strengthened to 86.08 pence per euro from 86.21 pence, after reaching 86.36 pence, the weakest since Jan. 28.
The number of real-estate agents and surveyors saying prices fell exceeded those seeing gains by 26 percentage points in February, down from 31 percent in January, the Royal Institution of Chartered Surveyors said, matching the median estimate in a Bloomberg survey of economists.
Linker Sale
The U.K. debt management office sold 800 million pounds of 0.625 percent index-linked securities maturing in November 2042. Investors bid for 2.8 times the securities on offer, pushing the so-called bid-to-cover ratio up from 1.9 when the same securities were last sold in December. They were sold at a real yield of 0.713 percent, down from 0.763 in December.
“There were some people who were keen to get their hands on it,” said Eric Wand, a rates strategist at Lloyds Bank Corporate Markets in London. “There still seems to be flow into index-linked product, now only in the U.K. but elsewhere, given concerns around commodity prices and food prices.”
Soaring food and energy costs helped to push U.K. consumer prices up an annual 4 percent in January, the most since November 2008.
BOE Rates
Last month, three of the Bank of England’s nine-member monetary policy panel voted to raise the benchmark interest rate to tame inflation. U.K. interest rates will rise by 25 basis points in June, according to sterling overnight index average forwards data from Tullett Prebon Plc.
Short-sterling futures rose today, pushing the implied yield on the December contract down one basis point to 1.59 percent, as investors took off bets that central bank rates will increase.
“Focus is on the BOE this week, but they won’t offer any kind of policy statement,” said Chris Walker, a currency strategist at UBS AG in London. “We are still looking for a rate hike in May, but we could see a slight pound sell off before then.”
Investor bets that the European Central Bank will raise borrowing costs before the Bank of England is supporting Euro- Pound above the 0.86 pence level, UniCredit SpA strategists led by Luca Cazzulani wrote in a note published today.
Economic Outlook
The British Chambers of Commerce and U.K. consultancy PricewaterhouseCoopers LLP cut their outlook for economic growth this year and said the London-based central bank should postpone interest-rate increases.
A higher bank rate in the first half of 2011 would be a mistake, the BCC said today. The London-based group sees the rate rising to 1.25 percent at the end of this year.
Sterling has gained 3.5 percent against the dollar this year amid speculation the British central bank will need to raise interest rates to curb inflation.
U.K. 10-year government bonds declined, pushing the yield up two basis points to 3.65 percent. The 4.75 percent security due March 2020 fell 0.125, or 1.25 pounds per 1,000-pound face amount, to 108.38. Two-year note yields were little changed at 1.36 percent.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net;
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
