BS: Pound Jumps Most in 7 Weeks Against Euro as Unemployment Falls
The pound jumped the most in seven weeks against the euro after U.K. unemployment fell to the lowest since April 2009, fueling speculation the central bank will raise interest rates sooner than it intends.
Sterling strengthened at least 0.5 percent versus all its 16 major counterparts even as minutes of the Bank of England’s December meeting showed policy makers were concerned further appreciation would hamper the economic recovery. U.K. government bonds fell before the Federal Reserve announces today whether it will start reducing its purchases of Treasuries and mortgage-backed bonds that has put downward pressure on borrowing costs around the world.
“A large drop in the U.K. unemployment data is revitalizing the pound,” Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London, wrote in a note to clients. “The U.K. will be the first major economy to raise rates. The pound is outperforming and will continue to do so.”
VIDEO: BNP Sees Dollar Strengthening to Mid-$1.20 Vs. Euro
The U.K. currency advanced 0.8 percent to 83.94 pence per euro at 1:37 p.m. London time, the biggest gain since Oct. 31. It depreciated to 84.67 pence yesterday, the weakest level since Nov. 4. The pound climbed 0.7 percent to $1.6375, ending a five-day run of losses that saw it decline 1.1 percent.
Sterling strengthened 6.1 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as the central bank brought forward its estimates for increases in interest rates amid signs the recovery is gathering pace.
Impede Growth
The nine-member Monetary Policy Committee said while sterling’s strength may help ease inflation pressures, it may also impede growth in an environment of weak global demand, the minutes of the Dec. 4-5 meeting showed.
The central bank, led by Governor Mark Carney, kept its main interest rate at a record-low 0.5 percent and maintained its asset-purchase target at 375 billion pounds. Policy makers have pledged to keep borrowing costs low until unemployment falls to 7 percent, subject to caveats on financial stability and the central bank’s inflation target of 2 percent.
“The U.K. is going to be fastest growing G-10 economy next year,” Steven Saywell, global head of foreign-exchange strategy at BNP Paribas SA in London, said in an interview on Bloomberg Television’s “On the Move” with Francine Lacqua, referring to the Group of 10 nations. “As a result of that we think sterling will probably be the best-performing currency.”
Stronger Pound
BNP Paribas predicts the pound will appreciate to 78 pence per euro by the end of 2014, a level last seen in July 2012. The median estimate of banks and securities companies surveyed by Bloomberg is for sterling to strengthen to 81 pence.
The jobless rate in the three months through October measured by International Labour Organization methods fell to 7.4 percent from 7.6 percent in the quarter through September, the Office for National Statistics said. The median forecast of economists was for it to stay at 7.6 percent. Jobless claims declined by 36,700 in November, the figures showed.
The yield on the benchmark 10-year gilt rose three basis points, or 0.03 percentage point, to 2.90 percent after dropping to 2.85 percent, the lowest level since Dec. 4. The 2.25 percent bond maturing in September 2023 fell 0.255, or 2.55 pounds per 1,000-pound face amount, to 94.575.
The Fed will announce today it will start reducing asset purchases from $85 billion a month, according to 34 percent of economists surveyed by Bloomberg on Dec. 6. Twenty-six percent forecast January and 40 percent said March.
Gilts lost 3.3 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities fell 1.7 percent and U.S. Treasuries declined 2.7 percent.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
