BLBG:Pound Snaps Two-Day Gain Versus Dollar as BOE Holds Key Rate at Record Low
The pound snapped a two-day advance against the dollar as the Bank of England kept its main interest rate at a record low to support economic growth.
Central bank policy makers left the benchmark rate unchanged at 0.5 percent, in line with the forecast of all 55 economists in a Bloomberg survey. The Bank of England kept its bond-purchase program, known as quantitative easing, on hold at 200 billion pounds ($327 billion). Gilts were little changed after rising for six straight days.
“As expected, this is business as usual and a non-event for the market,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “Inflation has still been too high for speculation of further QE this month. I expect this to change by the end of the year on the expectation that inflation will slow.”
The pound fell 0.5 percent to $1.6346 as of 12:01 p.m. in London. The British currency reached $1.6476 on Aug. 1, the most since June 1. Sterling was little changed at 87.20 pence per euro after reaching 86.84 pence, the strongest level since May 31.
The pound strengthened against the dollar yesterday as a report showed U.K. services growth unexpectedly accelerated.
A gauge based on a survey of services companies rose to 55.4 from 53.9 in June, Markit Economics and the Chartered Institute of Purchasing and Supply said. That compared with a median forecast of 27 economists in a Bloomberg News survey of a decline to 53.2.
Pay Growth Slows
A manufacturing index fell to the lowest in two years last month and a retail-sales gauge dropped to a 13-month low. While services growth quickened, according to Markit Economics, it said the recovery will be “choppy.”
Take-home pay growth at Britain’s largest listed companies slowed in July from a 28-month high, led by the services industry, VocaLink Ltd. said today.
Incomes after tax and other deductions climbed 2.9 percent in the three months through July from a year earlier, the group said in a statement in London today. That compares with 3.3 percent in the quarter through June, when the result was boosted by a tax change. Wage growth at service companies slowed to 2.9 percent from 3.4 percent.
Sterling has fallen 7.9 percent in the last 12 months, making it the second-worst performer among 10 developed-market currencies after the U.S. dollar, according to Bloomberg Correlation-Weighted Currency Indexes.
The 10-year gilt yield was one basis point lower at 2.73 percent. It reached a record low 2.71 percent yesterday. The 3.75 percent security due September 2020 traded at 108.15. The two-year gilt yield was little changed, at 0.62 percent.
Gilts have handed investors 6.3 percent this year, compared with 3.8 percent for German bunds and 5.2 percent for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Emily Blewett in London at eblewett@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
