RTRS: Pound Falls Versus High-Yield Currencies After Inflation Report
By Emma Charlton
Feb. 15 (Bloomberg) -- The pound weakened against higher- yielding currencies such as the New Zealand and Australian dollars after a Bank of England said the U.K. economy is likely to remain “weak.”
Sterling dropped to a six-month low versus New Zealand’s dollar after a report showed U.K. jobless claims rose more in January than economists forecast. The pound strengthened against the euro after the Bank of England raised its inflation forecast, damping speculation the central bank will boost its bond purchases. Gilts were little changed.
“The U.K. economy faces considerable downside risks and those are outlined” in the central bank’s report, said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “We are more on the pessimistic side. The pound weakened into the report, which overall is consistent with current market thinking.”
The pound slid 0.5 percent to 53.42 pence per New Zealand dollar at 1:18 p.m. in London after falling to 53.66 pence, the weakest since Aug. 2. Sterling declined 0.4 percent to 68.42 pence per Australian dollar. The U.K. currency rose 0.3 percent to 83.41 pence per euro, and was little changed at $1.5691.
The Bank of England said in its Inflation Report that the economy remains feeble because of the government’s fiscal squeeze and the euro-area crisis.
“There continue to be substantial uncertainties surrounding the outlook,” the central bank said. Growth is “likely to remain weak in the near term, before gradually strengthening as households real incomes recover,” it said.
Jobless Benefits
The number of people claiming jobless benefits rose by 6,900 to 1.6 million last month, the most since January 2010, the Office for National Statistics said. Unemployment measured by International Labour Organization methods jumped by 48,000 to 2.67 million in the fourth quarter, leaving the rate at 8.4 percent, the highest since 1995.
The pound has declined 1.5 percent this year according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. Over the past 12 months, it slid 5 percent, the indexes show.
The central bank sees inflation at its 2 percent target by year-end before easing to 1.8 percent in two years, according to the Inflation Report. In November, it forecast inflation would slow to 1.7 percent at the end of this year and 1.3 percent at the end of 2013.
‘Weaken Further’
“People look at the inflation forecasts and see they are slightly higher so think there’s a reduced risk for more quantitative easing,” said John Hydeskov, chief analyst at Danske Bank A/S in London. “They didn’t rule out more asset purchases but they didn’t promise them either. I think the pound is going to weaken further,” because of the stimulus already in place, he said.
The Bank of England announced an additional 50 billion- pound program of bond purchases on Feb. 9 after gross domestic product contracted 0.2 percent in the fourth quarter. The Monetary Policy Committee kept its benchmark interest rate at a record-low 0.5 percent the same day.
The 10-year gilt yield was little changed at 2.07 percent. The 3.75 percent bond due in September 2021 gained 0.21, or 2.1 pounds per 1,000-pound face amount, to 114.5.
Gilts have lost investors 1.3 percent this year, after returning almost 17 percent in 2011, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
--Editors: Paul Dobson, Nicholas Reynolds
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
