BLBG:Pound Drops On Speculation BOE May Add Stimulus To Boost Growth
The pound fell toward a four-month low against the dollar and gilts rose before the Bank of England announces its latest policy decision amid speculation it may add stimulus to the economy.
Sterling weakened against all of its 16 major peers before a report that economists said will show expansion in the service sector cooled in May. The central bank left its bond-purchase target unchanged last month as it forecast inflation would remain above its 2 percent target for longer than previously expected. Still, Citigroup Inc., Deutsche Bank AG, and Morgan Stanley are among banks that forecast it will expand its bond- buying program, known as quantitative easing, today.
We predict “an additional 50 billion pounds in quantitative easing,” Peter Goves, an analyst at Citigroup in London, said in an e-mailed note yesterday. “The economic backdrop remains very weak.”
The pound declined 0.4 percent to $1.5440 at 8:17 a.m. London time. It reached $1.5269 on June 1, the lowest level since Jan. 13. Sterling slipped 0.1 percent to 81.28 pence per euro.
The yield on 10-year gilts dropped four basis points to 1.63 percent.
The Bank of England announces its decisions at noon. It will keep its bond-purchase target at 325 billion pounds, according to 37 of 42 economists in a Bloomberg News survey. It will also leave its benchmark interest rate at a record-low 0.5 percent, a separate survey shows.
A purchasing-managers index for services, the largest part of the U.K. economy, dropped to 52.4 in May from 53.3 a month earlier, economists forecast before data due for release at 9:30 a.m. London time. A figure above 50 indicates expansion.
“The services PMI performance for May will be crucial in providing a strong pointer on the overall performance of the economy,” Blerina Uruci, an economist at Barclays Capital in London, wrote in a note yesterday. Policy action from the Bank of England will be much more probable should the gauge fall below Barclays’ forecast of 51.5, she wrote.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
