BLBG:Pound Advances as BOE Minutes Show 8-1 Vote to Pause Stimulus
The pound rose for a fourth day versus the dollar as minutes showed Bank of England policy makers voted 8-1 to pause a bond-buying program as risks from the euro-area crisis receded and inflation concerns persist.
Sterling climbed to the highest level in almost three months versus the U.S. currency as the minutes of the Dec. 5-6 meeting showed David Miles dissented and sought to increase the asset-purchase target by 25 billion pounds ($41 billion) to 400 billion pounds. All nine members of the Monetary Policy Committee voted to keep the benchmark interest rate at a record low of 0.5 percent. Ten-year gilts fell for a ninth day, the longest losing run since Feb. 2011.
“The market will interpret the 8-1 as being about as hawkish as one can expect,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “They will begin to price in the possibility of a stronger economic performance in the first quarter, and consequently there’ll be demand for the pound and sterling assets.”
The pound strengthened 0.3 percent to $1.6298 at 11:59 a.m. London time, after rising to $1.6307, the most since Sept. 21. The U.K. currency slipped 0.1 percent to 81.44 pence per euro.
The pound has gained 1.7 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro declined 0.9 percent and the dollar fell 3.5 percent.
Sterling will strengthen to about $1.67 and 77.50 pence per euro at the end of the first quarter, Mizuho’s Jones said. A Bloomberg survey of economists’ forecasts the U.K. currency will trade at $1.60 and 80 pence per euro by March 31.
Lending Scheme
The Bank of England halted bond purchases in November and is relying on its so-called Funding for Lending Scheme to boost credit and aid the economic recovery. The MPC said early signs of the FLS were “encouraging.” Still, it said the economy may shrink this quarter and surveys pointed to “broadly flat underlying output” in the near term.
The benchmark 10-year gilt yield rose one basis point, or 0.01 percentage point, to 1.96 percent after climbing to 1.98 percent, the highest level since Sept. 17. The 1.75 percent bond due in September 2022 dropped 0.09, or 90 pence per 1,000-pound face amount, to 98.12.
The U.K. 10-year break-even rate, a measure of expectations of inflation derived from a difference in yield between gilts and index-linked securities, was at 2.76 percentage points today, after climbing to 2.79 percentage points yesterday, the most since April 19.
U.K. retail-sales growth eased more than economists predicted in December, a report from the Confederation of British Industry showed.
The gauge of annual sales growth fell to 19 from 33 in November, the London-based business lobby said today. Economists had forecast a decline to 25, according to the median of 11 estimates in a Bloomberg News survey.
Gilts lost investors 1.5 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds are little changed while Treasuries fell 0.9 percent.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
