Monday, 15 July 2013

Pound Falls 2nd Day Versus Dollar Before BOE Publishes Minutes

By Anchalee Worrachate - Jul 15, 2013 3:11 PM GMT+0400
The pound fell for a second day against the dollar before the Bank of England publishes the minutes of its most recent policy meeting.
Sterling was little changed versus the euro after a report showed U.K. home sellers raised asking prices to a record. Benchmark 10-year gilt yields were within four basis points of the lowest in almost four weeks. The central-bank minutes, due on July 17, will reveal how policy makers voted at Governor Mark Carney’s first gathering. Investors boosted bets the pound would weaken even as the Ernst & Young Item Club raised its U.K. growth forecast.
July 15 (Video) -- Jane Foley, senior currency strategist at Rabobank International, talks about the performance of and strategy for the pound. She spoke July 11 in London. (Source: Bloomberg)
“The minutes will be absolutely critical because everyone is going be looking at how Carney voted,” said Kathleen Brooks, research director in London at, a unit of online currency-trading company Gain Capital Holdings Inc. (GCAP)“If he voted for further bond purchases, we are probably going to see a further decline in the pound. The market is recalibrating its view on the fact that Carney is likely to be a dovish force at the Bank of England.”
The pound slid 0.3 percent to $1.5062 at 12:05 p.m. London time after declining to $1.4814 on July 9, the lowest level since June 2010. The U.K. currency was at 86.51 pence per euro. It reached 86.94 pence on July 11, the weakest since March 13.
Brooks forecast the pound will drop to as low as $1.48 over the next three months.
Home prices sought climbed for a seventh month, increasing 0.3 percent to an average 253,658 pounds, London-based property-website operator Rightmove Plc said.

Futures Bets

The Bank of England’s Monetary Policy Committee kept its asset-purchase target at 375 billion pounds and held its benchmark rate at a record-low 0.5 percent on July 4. The central bank signaled in a statement that followed the decision that it will keep borrowing costs low for longer than investors had expected.
The U.K. economy will expand 1.1 percent this year, compared with an April forecast of 0.6 percent, the Ernst & Young Item Club said in a report to be published tomorrow. Growth will strengthen to 2.2 percent next year and 2.6 percent in 2015, both faster than previous estimates, it said.
Futures traders increased their bets that the British pound will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
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 34,259 on July 9, compared with net shorts of 31,324 a week earlier.

Gilts Spread

The pound has weakened 2.1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar rose 6.6 percent and the euro gained 5.1 percent.
The 10-year gilt yield was little changed at 2.33 percent. It reached 2.29 percent on July 12, theleast since June 20. The 1.75 percent security due September 2022 rose 0.01, or 10 pence per 1,000-pound face amount, to 95.25.
U.K. 10-year gilts yielded 196 basis points more than two-year securities. The average in the past 10 years was 101 basis points, according to data compiled by Bloomberg.
Carney is due to announce next month how officials will use forward guidance when setting policy after the central bank gave a signal on rates on July 4. That kind of policy signal and the improvement in the economy will probably widen the gap between short-dated and long-maturity rates further, said Deutsche Bank AG.
“Guidance in any form arguably implies a steeper curve, as the front end could be anchored, while terminal rates can be repriced,” wrote Deutsche Bank strategist Soniya Sadeesh in an e-mailed note dated July 12. “We maintain two- and 10-year steepeners.”
Gilts handed investors a loss of 2.5 percent this year through July 12, according to Bloomberg World Bond Indexes. German bonds declined 0.8 percent and Treasuries fell 2.7 percent.
To contact the reporter on this story: Anchalee Worrachate in London at
To contact the editor responsible for this story: Paul Dobson at