BLBG:Pound Falls to Seven-Month Low After Weale Comments on Exports
The pound fell to the lowest level versus the dollar in more than seven months after Bank of England policy maker Martin Weale said that U.K. exports may benefit from the currency’s decline.
Sterling weakened against 13 of its 16 major peers. The U.K. currency extended a decline from last week, when Bank of England Governor Mervyn King said Britain faced a muted economic recovery and the outlook for consumer prices is higher than forecast. Futures traders reversed their bets that the pound will gain against the dollar, weekly figures from the Washington-based Commodity Futures Trading Commission showed. Gilts were little changed.
“Investors are struggling to have faith in sterling,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “Investors are seeing an economy which is possibly entering another recession and is likely to see inflation holding above target. The central bank is also wanting to see the currency lower. Weale’s comments were a fresh piece of evidence.”
The pound fell 0.3 percent to $1.5474 at 10:57 a.m. London time after sliding to $1.5438, the lowest level since July 13. Sterling depreciated 0.3 percent to 86.30 pence per euro, after a 1.8 percent drop last week.
While sterling’s decline pushes inflation further above the Bank of England’s 2 percent target, it will also probably reduce external imbalances, Weale said in a Feb. 16 speech at the Warwick Economics Summit in Coventry, England.
Depreciation Benefits
“It may be that high levels of uncertainty and a reluctance to take on new risks have stood in the way of exporters seeking new markets and domestic producers doing what is needed to displace imports,” he said. “Provided the calmer atmosphere we have seen since the summer is sustained, we may see further benefits of the depreciation.”
The pound has tumbled 4.6 percent this year, the second- worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.8 percent and the euro rose 2.2 percent.
“Weale’s speech is in line with our bearish view on sterling,” Mansoor Mohi-uddin, head of foreign-exchange strategy at UBS AG in Singapore, wrote in a client note today. “This is a clear message from Weale that further currency weakness is both likely and desirable.”
The Bank of England is due to release minutes of this month’s policy meeting on Feb. 20. It left the target of its bond purchases unchanged at a Feb. 7 meeting, saying inflation is likely to accelerate and may stay above its 2 percent target for the next two years.
Net Shorts
The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain -- so-called net shorts -- was 16,776 on Feb. 12, compared with net longs of 1,174 a week earlier.
Futures are agreements to buy or sell assets at a set price and date. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange.
The U.K.’s 10-year gilt yield was at 2.18 percent, after reaching 2.27 percent on Feb. 14, the highest since April. The price of the 1.75 percent bond due in September 2022 was at 96.3.
U.K. government bonds handed investors a loss of 2.8 percent this year through Feb. 15, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds dropped 1.6 percent and Treasuries fell 0.9 percent.
The U.K. securities slid 0.8 percent in the past five days, the worst performers of 26 sovereign debt markets tracked by the Bloomberg/EFFAS indexes. On a dollar-denominated basis, gilts fell 2.6 percent.
To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
