BLBG: Pound Rises Most Against Dollar Since October On Draghi Comments
The pound rose the most against the dollar since October on optimism European policy makers will step up efforts to contain the debt crisis, improving the outlook for the U.K. economy.
Sterling advanced versus all except two of its 16 major counterparts after European Central Bank President Mario Draghi said officials will do whatever is needed to preserve the single currency, suggesting they may intervene in bond markets to contain rising borrowing costs. U.K. gilts fell for the first time in five days as demand for safer assets waned.
“Draghi’s comments have given a lift to risk in general and so the pound has rallied significantly against the dollar,” said Peter Kinsella, a foreign-exchange strategist at Commerzbank AG in London.
The pound rose 1.3 percent to $1.5699 at 2:12 p.m. London time after climbing as much as 1.4 percent, the biggest intraday gain since Oct. 12. The U.K. currency appreciated 0.1 percent to 78.33 per euro. It advanced to 77.55 pence on July 23, the strongest level since October 2008.
“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” Draghi said in a speech at the Global Investment Conference today in London. “Believe me, it will be enough.”
The ECB paused its bond-buying program in March as it pushed governments to do more to control their deficits and implement reforms.
The pound has appreciated 4.7 percent in the past year, the third best performer behind the yen and the dollar of the 10 developed-market currencies tracked by Bloomberg Correlation- Weighted Indexes. The euro has fallen 7.7 percent.
Gilts Fall
The 10-year gilt yield rose four basis points, or 0.04 percentage point, to 1.50 percent. The 4 percent bond maturing in March 2022 fell 0.37, or 3.70 pounds per 1,000 pound face amount, to 122.35.
Benchmark yields declined to a record 1.407 percent on July 23 as the deepening crisis in the euro area underpinned demand for haven assets.
U.K. government bonds have returned 17 percent in the past year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
Bank of England policy makers meet next week after boosting asset purchases, or so-called quantitative easing, by 50 billion pounds this month.
“From a quantitative-easing perspective, the bullish scenario for gilts is still very much intact,” said Sam Hill, a gilt strategist at Royal Bank of Canada in London.
The U.K. economy shrank the most since 2009 in the second quarter, a government report showed yesterday. Gross domestic product contracted 0.7 percent from the first quarter, when it dropped 0.3 percent, the Office for National Statistics said.
Hill said Royal Bank of Canada is predicting the Bank of England will increase asset purchases by another 50 billion pounds when it meets in November.
To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
