BLBG: Pound Poised for Biggest Advance in Seven Weeks Against Dollar
The pound headed for its biggest weekly gain against the dollar in seven weeks after the Federal Reserve committed to start printing cash to buy Treasuries.
The pound held near its highest level in a month against the dollar after the Financial Times cited Bank of England Chief Economist Spencer Dale as saying the U.K. economy will begin growing this year. The Fed said March 18 its balance sheet may expand $1.15 trillion as it buys as much as $300 billion of government debt.
“In the wake of the surprise from the Fed, the dollar is suffering across the board, including against the pound,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International. “Any further gains in the pound will be driven by what happens in the U.S.”
The pound was 3 percent higher in the week at $1.4422 by 3:38 p.m. in London, from $1.4506 yesterday, the biggest gain since the five days ending Jan. 30. The U.K. currency strengthened to 93.92 pence per euro, from 94.19 yesterday, paring its weekly loss to 1.6 percent.
The Fed’s plan followed the Bank of England’s announcement this month that it would buy gilts and the Bank of Japan’s decision to start purchasing government bonds.
U.K. policy makers voted unanimously to start printing 75 billion pounds ($105 billion) to fight the recession as they cut the benchmark interest rate to a record low of 0.5 percent, according to minutes of the March 5 decision released in London this week. Chancellor of the Exchequer Alistair Darling gave the central bank authority to buy as much as 150 billion pounds of assets.
‘Pound Bullish’
The pound is likely to be supported by a rally in bank shares as the measures announced by policy makers globally come into effect, according to BNP Paribas SA.
“We view the quantitative easing introduced in the U.K. and then adopted in Switzerland and the U.S. as pound bullish,” BNP analysts wrote in a research note today.
U.K. government bonds rose, with the 10-year gilt yield falling two basis points to 3.02 percent on the day. The yield was 3.64 percent on March 4, the day before the Bank of England said it would begin its program of quantitative easing.
The yield on the two-year note dropped four basis points to 1.34 percent today.
