BLBG:Pound Advances Versus Dollar as BOE Maintains Bond-Buying Target
The pound strengthened against the dollar, rising from a more than three-week low reached yesterday, as the Bank of England kept its asset-purchase target at 375 billion pounds ($604 billion) at a meeting today.
Sterling fell for a fifth day versus the euro, slipping to the weakest level in almost two weeks. The Bank of England decision was predicted by all 40 economists surveyed by Bloomberg News. The central bank also kept its key interest rate at a record low 0.5 percent, in line with all 50 estimates in a separate survey. Gilts were little changed.
“Sterling has been a bit soggy recently,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “There’s a little bit of a recovery today. I don’t think any particular positions were taken ahead of the Bank of England meeting.”
The pound rose 0.3 percent to $1.6119 as of 12:50 p.m. London time, after falling to $1.6067 yesterday, the lowest level since Sept. 12. Sterling slipped 0.1 percent to 80.37 pence per euro, after touching 80.42 pence, the weakest since Sept. 20.
The pound stayed lower against the euro after the European Central Bank kept its main refinancing rate at a record-low 0.75 percent, as predicted by all but four of 52 economists surveyed by Bloomberg News
Yields on 10-year gilts climbed seven basis points and the pound strengthened 0.2 percent versus the dollar after the Bank of England left monetary policy unchanged on Sept. 6.
‘Priced In’
“There was zero expectation for any further printing today,” Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London, said before the announcement, referring to the policy of bond purchases. “It is already priced in, so I would not expect there to be any major rally in the pound.”
The Bank of England will increase its asset-purchase target by 50 billion pounds in November because U.K. growth is “unlikely to improve,” James Knightley, a senior economist at ING Groep NV in London, wrote in an e-mailed comment.
The median year-end estimate for the pound versus the dollar is at the highest since Nov. 30, according to data compiled by Bloomberg, based on a survey of 49 analysts. The median forecast increased to $1.60 on Sept. 28, up from $1.55 on Sept. 14.
FxPro’s Derks said the pound may weaken toward $1.59 this month and reach $1.57 by year-end.
Sterling Strength
Sterling has strengthened 0.9 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro also gained 0.9 percent, while the dollar weakened 2.8 percent.
The pound may decline as much as 1.2 percent against the dollar if it breaks through a key level of so-called support, Standard Chartered Plc said, citing trading patterns.
A break below $1.6064, the 23.6 percent Fibonacci retracement of the currency’s appreciation between June 1 and Sept. 21, will open up a decline to $1.5912, the 38.2 percent retracement of that move, Callum Henderson, the Singapore-based global head of currency research at Standard Chartered, wrote in an e-mailed report today.
U.K. house prices fell for a third month in September and will probably remain little changed into 2013 as the uncertain economic outlook constrains property demand, according to Halifax, the mortgage unit of Lloyds Banking Group Plc.
Negative Outlook
Fitch Ratings said Sept. 28 that U.K. government debt will peak at a higher level and later than it previously predicted. The company affirmed Britain’s AAA credit level and kept the nation on negative outlook, adding that it doesn’t expect to resolve the question mark hanging over the top grade until 2014.
“Growth is still elusive,” John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London, said in an interview today on Bloomberg TV’s “Countdown” with Mark Barton. “It means the triple-A rating and the fiscal credibility coming into question. The danger of the U.K. losing its rating is growing. Appetite for gilts may start to wane.”
The 10-year gilt yield was little changed at 1.70 percent, after falling to 1.679 percent, the lowest level since Sept. 10. The 1.75 percent security due in September 2022 traded at 100.495. Two-year yields were at 0.19 percent.
Gilts returned 3.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 3.2 percent and U.S. Treasuries earned 2.4 percent.
To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
