BLBG:Pound Set for Biggest Weekly Gain in Two Years
The pound headed for its biggest weekly advance in two years against the euro amid speculation the Bank of England will refrain from extending its stimulus program in contrast to its European counterpart.
Sterling rose for a third day versus the dollar before U.K. reports next week forecast to show producer prices rose in January and retail sales increased. Future Bank of England Governor Mark Carney said yesterday that current monetary policy may be enough to help the economy, while European Central Bank President Mario Draghi said policy may “remain accommodative.” U.K. government bonds underperformed German bunds this week by the most in a month.
“We might see a stronger sterling against the euro,” said Eimear Daly, a currency-market analyst at Monex Europe Ltd. in London. “We’ve seen a very dramatic move since the start of the year. The market had priced in aggressive easing from Carney and they were probably disappointed from what they saw yesterday. The move was compounded by what we saw from Draghi.”
The pound strengthened 0.2 percent to 85.11 pence per euro at 11:36 a.m. London time, having gained 2.1 percent this week, the most since the period ended Jan. 7, 2011. Sterling rose 0.3 percent to $1.5767.
Bank of England policy makers yesterday left the benchmark interest rate at a record-low 0.5 percent and held the asset- purchase target at 375 billion pounds, as predicted by all economists surveyed by Bloomberg News.
Biggest Drop
Draghi yesterday caused the euro to slump yesterday by suggesting its recent appreciation may damp inflation, a signal that further interest-rate cuts remain a possibility.
The pound has gained 1.2 percent this week, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro dropped 1.1 percent and the dollar advanced 0.8 percent.
Producer output prices climbed 0.2 percent last month, after falling 0.1 percent in December, according to a Bloomberg survey before the Office for National Statistics report on Feb. 12. Retail sales climbed 0.5 percent, a separate survey showed ahead of the data on Feb. 15.
The yield on the 10-year gilt fell one basis point, or 0.01 percent, to 2.10 percent after rising to 2.17 percent on Feb. 4, the highest level since April 20. The 1.75 percent bond due September 2022 gained 0.1, or 1 pound per 1,000-pound face amount, to 97.045.
The extra yield, or spread, that investors demand to hold 10-year gilts instead of similar-maturity funds widened seven basis points this week to 49 basis points. That’s the biggest weekly increase since the period ending Jan. 4.
Gilts have lost 2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds dropped 1.3 percent and Treasuries fell 0.8 percent.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
