BLBG:Pound Weakens Versus Dollar as BOE Minutes Signal More Stimulus
The pound fell to a six-week low against the dollar after minutes of the most recent Bank of England’s policy meeting showed some officials said an increase in stimulus may be needed.
Sterling dropped to the weakest level since Oct. 12 against the yen after the minutes revealed the nine-member Monetary Policy Committee, led by Governor Mervyn King, voted unanimously to keep its key interest rate at a record low 0.5 percent and hold its target for quantitative easing at 275 billion pounds ($428 billion). Gilts advanced for a third day, pushing 10-year yields to the least on record.
“The tone was very dovish,” said John Hydeskov, chief analyst at Danske Bank A/S in London. “Though some members probably preferred to speed up QE to stimulate economic growth, it may be difficult in practice. It’s natural for the BOE to apply more stimulus.”
The pound depreciated 0.4 percent to $1.5569 at 10:47 a.m. London time, after dropping to $1.5554, the lowest level since Oct. 12. Sterling declined 0.2 percent to 120.16 yen, after sliding to 119.839, also the least since Oct. 12. The currency strengthened 0.5 percent to 85.97 pence per euro.
The pound may weaken toward $1.53 by the end of the year, Hydeskov said.
“The existing program of asset purchases would take a further three months to complete and market capacity made it difficult to increase the monthly rate of purchases substantially above what was already under way,” according to the minutes. “The balance of risks to inflation” in the bank’s new forecasts “meant that a further expansion of the asset- purchase program might well become warranted in due course.”
‘Difficult to Increase’
The central bank cut its growth and inflation forecasts last week and said today the threat from the euro-area debt crisis had increased. Officials forecast inflation may slow below their 2 percent target in two years, signaling they may need to increase the stimulus plan.
Bank of England Chief Economist Spencer Dale said the economic situation has become “tougher” because of the Europe crisis and policy makers’ view is the recovery needs support.
“There had been signs of a recovery through 2010 into the first half of this year, but more recently things are getting tougher, particularly because of events in Europe and the implications that’s having on our economy,” he told BBC Radio Ulster in Northern Ireland.
Mortgage Approvals
A separate report from the British Bankers’ Association showed U.K. mortgage approvals rose in October. Lenders granted 35,295 loans to buy homes, up from a revised 33,502 in September, the trade group said in an e-mailed report.
The pound has weakened 3.6 percent in the past 12 months, the third-worst performer after the Canadian and New Zealand dollars among 10 developed-market peers measured by Bloomberg Correlation-Weighted Indexes.
The 10-year gilt yield dropped three basis points, or 0.03 percentage point, to 2.14 percent, after declining to 2.104 percent, the lowest level since Bloomberg began collecting data on the securities in 1992. The 3.75 percent bond maturing September 2021 rose 0.28, or 2.80 pounds per 1,000-pound face amount, to 114.110.
The two-year yield was little changed at 0.49 percent.
Gilts have returned 15 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt gained 8.2 percent and U.S. Treasuries rose 9.6 percent, the indexes show.
To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
