BLBG:Pound Weakens Versus Euro After Dale Comments, German Confidence
The pound fell from a two-week high against the euro as Bank of England policy maker Spencer Dale said it would be a long time until the U.K. economy was strong enough to justify higher interest rates.
Sterling extended losses versus the 17-nation currency after a German report showed business confidence in Europe’s biggest economy surged to the highest level in 19 months. While the U.K. is recovering there’s still “a long way to go” before it has healed enough to withstand higher borrowing costs, Dale said in a BBC Radio Merseyside interview. U.K. government bonds headed for a weekly decline.
“They are not in a rush to hike rates,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “This rally of sterling may be excessive and some correction might be on the cards while the euro should sustain gains.”
The pound weakened 0.3 percent to 83.45 pence per euro at 11:06 a.m. London time after appreciating to 83.17 pence, the strongest since Nov. 7. The U.K. currency was little changed at $1.6196. It climbed to $1.6217, the highest since Oct. 25.
Bank of England officials are not in a “rush” to increase the benchmark interest rate from a record-low 0.5 percent, the Sun newspaper quoted Deputy Governor Charles Bean as saying in an interview yesterday. While growth was picking up it was still muted, he said.
Policy makers will raise borrowing costs “when we’ve seen a sustained recovery and the economy is strong enough to stand it,” Dale said today. “The message we’ve been giving to businesses is that we don’t think that’s anytime soon.”
German Confidence
The pound weakened for the first time in three days versus the euro as Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 109.3 in November, the highest since April last year. The result exceeded all 43 economist forecasts in a Bloomberg News survey.
The pound has still strengthened 6.9 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 4.1 percent, while the dollar weakened 1.5 percent.
Sterling climbed to the highest in more than three years versus Australia’s dollar today amid speculation U.K. data next week will confirm the economy accelerated in the third quarter and a gauge of house prices increased for a seventh month.
Economic ‘Resilience’
Gross domestic product rose 0.8 percent after growing 0.7 percent in the previous three months, according to a Bloomberg News survey before the Office for National Statistics releases the figures on Nov. 27. Home prices climbed 0.7 percent in November, a separate survey showed before the Nationwide Building Society issues the report next week.
“We expect the upcoming U.K. data to highlight the resilience of the economic recovery and corroborate the view that the Bank of England would be moving towards removing policy accommodation before long,” Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. in London, wrote in a research note. “All that should keep sterling supported for now.”
Sterling gained 0.7 percent to 1.7675 Australian dollars after rising to 1.7687, the strongest since July 2010. The U.K. currency was little changed at 163.96 yen. It earlier appreciated to 164.08 yen, the highest since October 2008.
The benchmark 10-year gilt yield was little changed at 2.80 percent, having increased six basis points this week. The price of the 2.25 percent bond due in September 2023 was 95.28.
Gilts lost 3.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 1.3 percent and U.S. Treasuries declined 2.6 percent.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
