BLBG: Pound Advances Against Major Peers as Policy Gap Boosts Demand
The pound rose, approaching a six-year high against the yen, on speculation it will be supported by relatively higher interest rates even as the Bank of England delays increasing U.K. borrowing costs.
Sterling held a three-day gain versus the euro before data this week that analysts said will show U.K. gross domestic product expanded in the third quarter. While BOE interest rates are at a record-low 0.5 percent, they are higher than those of the euro area and Japan, where policy makers are also embarking on more stimulus measures that tend to devalue local currencies. U.K. 10-year government bonds halted a two-day advance after yields touched a five-week low.
The policy “divergence trade is still very much a strong force” even as U.K. data “has been slightly more mediocre than previously,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Sterling will outperform against all the others” including the yen and the euro which are being pulled down by prospects of new stimulus measures, he said.
Sterling gained 0.6 percent to 185.50 yen at 12:54 p.m. London time after jumping to 186.13 on Nov. 20, the strongest level since October 2008. The U.K. currency was little changed at 79.12 pence per euro after reaching 79.03 pence, the strongest since Nov. 13. The pound rose 0.2 percent to $1.5684. It dropped to $1.5590 on Nov. 19, the lowest since Sept. 6, 2013.
Mizuho’s Jones said he expects the pound to drop to $1.55 by year-end and reach $1.5250 in the first quarter of next year.
Rates Forecast
While sterling fell 0.6 percent in the past month, it has still gained 4.4 percent in the past year, the biggest advance after the dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
The Office for National Statistics will say on Nov. 26 that GDP increased 0.7 percent in the three months through September, the same as the period through June, according to the median estimate of economists in a Bloomberg news survey. U.K. exports fell 0.1 percent in the period, after a drop of 0.4 percent in the previous three months, according to the economists.
British Bankers’ Association data tomorrow will show lenders granted fewer loans for homes last month compared with September, a separate survey of analysts forecasts.
Deutsche Bank AG pushed back its estimate for a rate increase from the BOE to August, after previously saying it expected borrowing costs to rise in February, its chief U.K. economist, George Buckley, wrote in a client note dated today.
Ten-year gilt yields were little changed at 2.06 percent after touching 2.04 percent, the least since Oct. 16. The price of the 2.75 percent bond due in September 2024 was at 106.085 percent of face value.
U.K. government securities have outperformed their German and U.S. counterparts this year as investors pared back expectations for higher interest rates. Gilts earned 11 percent through Nov. 21, according to Bloomberg World Bond Indexes. German securities returned 8.4 percent and U.S. Treasuries 5.2 percent.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord, Keith Jenkins
