BS: Pound Heads for Second Weekly Gain Versus Dollar Before Minutes
The pound headed for a second weekly advance against the dollar before the Bank of England publishes minutes of its November meeting next week after signaling interest rates may increase sooner than it previously forecast.
Sterling rose for a third day versus the euro after central bank Governor Mark Carney said two days ago that Britain has “one of the strongest recoveries in the advanced world.” The U.K. currency climbed to a four-year high against the yen for a second day amid bets Britain’s economy will expand at a faster pace than Japan’s. Bank of England policy maker David Miles said interest rates should only be increased when other tools have been exhausted. U.K. government bonds were little changed.
“We have seen such a strong move in the pound this week,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “The strength is justified by the improvement in the economic performance and I think over the medium term, it can continue.”
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The pound gained 0.1 percent to $1.6079 at 11:24 a.m. London time, having risen 0.4 percent this week. Sterling climbed 0.2 percent to 83.62 pence per euro. The U.K. currency advanced 0.5 percent to 161.47 yen after climbing to 161.48, the strongest since August 2009.
The central bank said in its quarterly Inflation Report released on Nov. 13 the jobless rate is more likely than not to fall to the 7 percent threshold that will lead it to consider raising borrowing costs in the third quarter of 2015. Policy makers previously predicted that would only happen in the second quarter of 2016. The unemployment rate fell to 7.6 percent in the third quarter, the lowest since 2009.
BOE Minutes
The Bank of England will publish the minutes of its Nov. 7 policy meeting on Nov. 20. At that gathering, the central bank kept its key rate at a record low 0.5 percent and maintained its bond-buying stimulus target at 375 billion pounds.
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“The U.K. Quarterly Inflation Report essentially confirmed that the Bank of England now expects unemployment to fall faster as the economic recovery continues,” Neil Staines, London-based head of trading at ECU Group Plc, a currency manager that oversees almost $1 billion, wrote in a note to clients. “In an environment of low inflation, rising growth and rising employment, U.K. assets should remain attractive.”
The pound strengthened 5.6 percent in the past six months, the best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 4.2 percent, while the dollar dropped 0.6 percent.
‘Blunt Instrument’
Bank of England’s Miles, speaking at a conference hosted by the Federal Reserve Bank of Dallas yesterday, said the problem with using monetary policy to stabilize the housing market would be “acute” if the property market was overheating while the wider economy wasn’t and inflation was low.
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“Variations in interest rates that central banks can control are rather a blunt instrument,” he said. “Indeed the impact on assets other than houses, and the effects on borrowing and spending unrelated to housing, may well be far greater than the impact on housing.”
The benchmark 10-year gilt yield was at 2.76 percent, having declined one basis point this week. The price of the 2.25 percent bond maturing in September 2023 was 95.69.
Gilts lost 3 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 1.1 percent and U.S. Treasuries declined 2.3 percent.
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To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
