BLBG; U.K. Pound Extends Gains Against Dollar as Retail Sales Unexpectedly Rise
The pound gained versus the dollar as data showed retail sales unexpectedly rose and the U.K. budget deficit was below economist estimates, buoying recovery confidence and strengthening the case for higher interest rates.
Britain’s currency reversed declines against the euro after data showed March retail sales rose 0.2 percent from a month earlier as spending on food surged. The median forecast of 20 economists in a Bloomberg News survey was for a 0.5 percent decline. U.K. net borrowing was 18.6 billion pounds ($30.7 billion), compared with the 20 billion-pound median estimate in a separate Bloomberg survey. Gilts rose after the U.K. Debt Management Office cut planned sales by 1.5 billion pounds.
“We have speculation about a Bank of England rate hike this year, maybe in the middle of the year, but the Federal Reserve will probably keep its expansionary stance and we expect the first hike only in the beginning of 2012,” said You-na Park, a currency strategist at Commerzbank AG in Frankfurt. “The BOE will probably begin its tightening this year so the pound is able to gain against the dollar.”
The pound rose 1 percent to $1.6574 as of 1:50 p.m. in London. Against the euro, sterling was 0.6 percent stronger at 87.95 pence, after earlier dropping as much as 0.3 percent.
Bank Minutes
The Federal Reserve will increase interest rates in the first quarter of next year and the U.K. central bank will raise borrowing costs before the end of the year, according to Bloomberg surveys.
Minutes of the Bank of England’s April 7 meeting showed policy makers voted 6-3 to keep the benchmark rate at a record low 0.5 percent, amid concern that the past month’s data indicated a weaker economy.
U.K. government bonds rose, pushing the 10-year gilt yield three basis points lower to 3.54 percent. The two-year note yield was two basis points lower at 1.14 percent, after reaching 1.12 percent, the lowest since Jan. 5.
The Debt Management Office will cut sales of short-dated notes by 0.6 billion pounds to 57.4 billion, medium-dated debt by 0.2 billion pounds to 34.7 billion, long-dated gilts by 0.3 billion pounds to 37.4 billion and inflation-protected securities by 0.4 billion pounds to 38 billion, the agency said today on its website.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
