BLBG:Pound Slides to 2 1/2-Year Low on BOE-Fed Stimulus Split
The pound fell to the weakest since July 2010 against the dollar after the Federal Reserve signaled it may slow the pace of bond-buying program, while more Bank of England policy makers voted this month to boost stimulus.
The U.K. currency extended its decline versus the greenback to 6.4 percent this year as minutes of the Fed’s January meeting released yesterday showed several participants said the central bank should be “prepared to vary the pace of asset purchases,” known as quantitative easing. Sterling rose against the euro after a report showed services and manufacturing in the region shrank in February. Gilts rose as the U.K. sold 10-year bonds.
“The pound was underperforming anyway due to the recent BOE alarm bells,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “There are pound-specific sell forces in play in the form of verbal intervention, potential rate cuts and further QE, and the Fed added fuel to the fire. A move to $1.50 is our current target.”
The pound fell 0.1 percent to $1.5222 at 11:10 a.m. London time after sliding to $1.5132, the lowest since July 21, 2010. The U.K. currency gained 0.7 percent to 86.59 pence per euro. It slid to 87.65 pence yesterday, the weakest since October 2011.
Bank of England Governor Mervyn King and Paul Fisher joined David Miles in voting to increase the target for bond purchases by 25 billion pounds to 400 billion pounds, minutes of the central bank’s Feb. 7 meeting released yesterday showed. They were outvoted by the remaining six members of the Monetary Policy Committee.
Further Losses
The pound may decline a further 2.4 percent against the dollar after breaking through a key level of so-called support, Credit Suisse AG said, citing trading patterns.
Sterling may fall toward $1.4856, the 61.8 percent Fibonacci retracement of its advance between January and August 2009, after breaching $1.5274, the 50 percent retracement, Cilline Bain, a technical analyst in London, wrote in a client note.
“We will continue to slide lower,” Bain said in a telephone interview, confirming the contents of the report. “The next significant target is $1.4856.” Support refers to an area where buy orders may be clustered.
The pound has slumped 5.1 percent this year, the second- worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. Only the yen has weakened more, losing 5.7 percent.
The 10-year gilt yield fell six basis points, or 0.06 percentage point, to 2.14 percent. The 1.75 percent bond due September 2022 rose 0.475, or 4.75 pounds per 1,000-pound face amount, to 96.68.
The U.K. sold an additional 2.25 billion pounds of the securities at an average yield of 2.147 percent, the highest since May. The government last sold 10-year bonds on Jan. 22 at an average yield of 1.897 percent.
Gilts handed investors a loss of 2.8 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds dropped 1.7 percent and Treasuries fell 0.9 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
