BLBG:Pound Strengthens as BOE Policy Makers Refrain From Stimulus
The pound strengthened versus the euro for the first time in six weeks as minutes from the Bank of England’s last meeting showed policy makers voted unanimously against expanding stimulus that tends to debase the currency.
Sterling advanced versus the dollar for a second week after government reports showed U.K. unemployment claims in June fell at their fastest pace in three years and retail sales rose for a second consecutive month, adding to evidence that the nation’s economic recovery is gaining traction. U.K. government bonds rose for a second week, with two-year gilt yields falling to the lowest level since May.
“It’s taken the market by surprise for sure,” said Peter Kinsella, senior foreign-exchange strategist at Commerzbank AG in London, referring to the strength of the U.K. currency. “There was no real reason to buy the pound because it wasn’t as if monetary conditions were going to be tightened any time soon. You’ve seen good data this week in retail sales and as a result the pound strengthened.”
The pound climbed 1 percent this week to $1.5259 at 5 p.m. London time yesterday after rising to $1.5282, the highest since July 4. The U.K. currency appreciated 0.4 percent to 86.12 pence per euro.
Sterling gained 2.2 percent in the last three months, the second-best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 2.8 percent and the dollar rose 2 percent.
The Bank of England’s asset-purchase target has remained at 375 billion pounds since July last year, when it was increased by 50 billion pounds.
BOE Policy
The central bank introduced stimulus measures in 2009 to boost the U.K. economy and completed its last round of bond purchases in November. The minutes, released July 17, showed the nine-member Monetary Policy Committee led by new Governor Mark Carney voted to move away from quantitative easing in favor of a policy on forward guidance.
A report next week may show the U.K. economy grew in the second quarter may support the pound. Gross domestic product increased 0.6 percent in the three months to June, according to the median estimate of economists in a Bloomberg News survey.
“The pound is being supported by evidence that the economic recovery is gaining traction,” said Eimear Daly, head of market analysis at Monex Europe Ltd. in London. “The market consensus is that the GDP data next week will support that view. It’s likely the data may surprise on the upside.”
Benchmark 10-year gilt yields fell four basis points, or 0.04 percentage point, to 2.28 percent after dropping 16 basis points last week. The 1.75 percent security due in September 2022 rose 0.36, or 3.60 pounds per 1,000-pound face amount, to 95.62. The rate on two-year gilts declined four basis points to 0.32 percent after reaching 0.27 percent yesterday, the lowest since May 9.
Gilts handed investors a 2.2 percent loss this year through July 18, according to Bloomberg World Bond Indexes. German bonds declined 0.6 percent and Treasuries fell 2.6 percent.
To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
