WSJ: WORLD FOREX: U.K. Pound Gains Vs. Dollar After BOE Minutes
By Bradley Davis
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The U.K. pound gained against the dollar Wednesday after minutes from the Bank of England's rate-setting committee painted a more positive picture than had been expected.
As the effects of the U.K.'s belt-tightening budget weigh on expectations of future growth, some analysts had expected the BOE's Monetary Policy Committee in its August minutes released Wednesday to have discussed an expansion of so-called quantitative easing, the government bond-buying program intended to stimulate a sagging economy.
The minutes showed the committee considered arguments for easing and for tightening policy at its August meeting, but eight of its members ultimately decided to leave policy on hold, with one dissenter who wanted to increase key rates.
"There was speculation that maybe the discussion regarding QE would have been more emphasized," with members perhaps even voting to increase the bond-buying program, said Ian Stannard, currency strategist at BNP Paribas in London. The fact that the BOE left the bond-buying program unchanged provided support for sterling, Stannard said.
The continuing dissent of MPC member Andrew Sentance to increase key rates also lent the pound support, though Stannard said inflation expectations that are likely to diminish, along with slowing growth, are likely to push the pound lower in the medium term.
Wednesday morning, the U.K. pound had gained more than 0.5%, at $1.5680 from $1.5572. The euro was at $1.2912 from $1.2879 late Tuesday, according to EBS via CQG. The dollar was at Y85.25 from Y85.50, while the euro was at Y110.05 from Y110.12. The dollar was at CHF1.0400 from CHF1.0440.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 81.961 from 82.236.
The Canadian dollar rose strongly, bolstered by continued positive fallout from news that Australian firm BHP Billiton Ltd. is making a bid for Potash Corp. of Saskatchewan Inc.
Billiton initially made a $38.56 billion offer on Tuesday that was rejected by Potash Corp.'s board. It announced earlier Wednesday that it will make its bid directly to the target's shareholders.
The U.S. dollar was at C$1.0275 from C$1.0333 late Tuesday. It touched a session low of C$1.0273 in earlier trading, its lowest level since Aug. 9, according to EBS via CQG, before rebounding modestly.
"With talk that BHP is launching a hostile takeover attempt for Potash Corp, [the Canadian dollar] has continued to perform well, despite the weakness in equities and oil prices this morning," said TD Securities. "Estimates of how much [Canadian dollars] will have to be purchased in the deal are in the neighborhood of just below C$10 billion," TD said.
The euro mustered a modest gain against the dollar, tracing above $1.29, with strong government-debt auctions in Portugal and Germany undergirding the common currency.
If the euro does not sustain gains above $1.29, a BNP Paribas technical analysis calls for it to fall, with a break below $1.2735 signaling a new downtrend in the common currency.
"Indeed, within Europe despite the more positive news coming from the recent sovereign bond auctions and bill issues, there remain concerns regarding the banking sector in some regions," BNP Paribas analysts said.
The yen also continued to make gains against the dollar. While Japan's central bankers don't think the yen's rise poses an immediate threat to the economy, they are ready to consider additional monetary steps if the currency surges higher or if politicians apply more pressure for action, people familiar with the situation told Dow Jones Newswires.
-By Bradley Davis, Dow Jones Newswires; 212-416-2654;
