BLBG: Pound Drops to 17-Month Low as BOE Seen Maintaining Rate in 2015
The pound dropped to a 17-month low against the dollar amid speculation Bank of England policy makers will keep interest rates at a record low throughout 2015.
Sterling is the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes this year. Forward contracts show investors are betting the sterling overnight interbank average, or Sonia, will be at 0.55 percent at the Bank of England’s November meeting, from 0.43 percent this month, and compared with the benchmark interest rate of 0.5 percent. The central bank kept the rate unchanged today, as predicted by all 42 economists surveyed by Bloomberg News.
Inflation-linked gilts were little changed even as a U.K. Statistics Authority report said Britain should move away from selling bonds tied to the retail price index.
“The market has gone too far pushing the first rate hike out to early 2016,” Steven Saywell, the London-based global head of foreign-exchange strategy at BNP Paribas SA, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro. “We don’t write off a rate hike in 2015 from the Bank of England. Sterling to outperform the euro or Swiss franc is a great trade for this year.”
The pound fell 0.3 percent to $1.5061 at 12:01 p.m. London time and reached $1.5035, the weakest level since July 2013. Sterling strengthened 0.3 percent to 78.14 pence per euro.
Benchmark 10-year gilt yields were little changed at 1.63 percent after climbing five basis points, or 0.05 percentage point, yesterday. The price of the 2.75 percent bond due in September 2024 was at 110 percent of face value.
U.K. government bonds returned 15 percent last year, the most since 2011, according to Bank of America Merrill Lynch indexes, as stalling global growth and plunging commodity prices convinced investors rates are likely to stay lower for longer. As recently as August, the market was fully pricing in a 25 basis-point increase by February.
The yield on 10-year inflation-linked gilts was at minus 0.939 percent.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord
