BLBG:Pound Falls Amid Speculation Fed to Slow Stimulus; Gilts Advance
The pound fell versus the dollar, extending a second weekly decline, as speculation the Federal Reserve is moving closer to ending stimulus boosted demand for the U.S. currency.
Sterling approached the lowest level in six weeks versus the greenback after Fed Bank of San Francisco President John Williams said yesterday the U.S. central bank may begin to taper off its monthly asset purchases as early as this summer. Williams doesn’t vote on Fed policy this year. U.K. 10-year government bonds advanced for a second day as Bank of England policy maker Martin Weale said market expectations for the central bank to keep interest rates low reflected his own view.
“It’s the dollar leg of the equation that continues to be the primary mover of the pound,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “Williams’s comments have provided dollar support, even if he is a non-voter. With the U.S. looking further ahead in the discussion of pulling back stimulatory policy, cable looks vulnerable,” he said, referring to the pound-dollar rate.
The pound fell 0.2 percent to $1.5240 as of 11:52 a.m. London time after reaching $1.5174 on May 15, the least since April 4. It has dropped 0.8 percent this week. Sterling was little changed at 84.40 pence per euro after depreciating to 85.17 pence on May 15, the weakest since April 25.
Pound Declines
The pound has fallen 2.1 percent this year, the second-worst performer after the yen, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The U.S. currency gained 4.9 percent and the euro strengthened 2.2 percent.
U.K. 10-year gilt yields dropped two basis points, or 0.02 percentage points, to 1.84 percent after falling six basis points yesterday, the most since April 5. The 1.75 percent bond due in September 2022 rose 0.19, or 1.90 pounds per 1,000-pound face amount, to 99.245.
Upward inflation pressures “have eased somewhat” so that risks around the central bank’s 2 percent target “are now more or less evenly balanced,” Weale said in a speech in Birmingham, England.
“The market signal pointing to low interest rates for some time to come is certainly at present consistent with the way I see the outlook for the economy and the balance of risks affecting inflation and output,” he said.
The Monetary Policy Committee “has concluded that this implied path for bank rate is consistent with its remit, at least in current circumstances,” Weale said.
BOE Policy
The central bank raised its growth forecast and lowered its projection for inflation on May 15, a week after officials maintained their bond-purchase plan at 375 billion pounds. Policy makers have held the central bank’s key interest rate at a record-low 0.5 percent since March 2009.
The yield on 10-year gilts rose to more than their French peers for the first time since April 2011, according to data compiled by Bloomberg based on closing prices. The 10-year gilt rate exceeded that on similar-maturity French bonds by almost one basis point. The last time French 10-year yields closed below those in the U.K. was April 11, 2011.
U.K. gilts gained 0.2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 0.4 percent and Treasuries rose 0.1 percent.
To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
