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Thursday, 13 February 2014
Pound Advances to 2 1/2-Year High on Dale Comments; Gilts Gain
By Anchalee Worrachate and Lukanyo MnyandaFeb 13, 2014 8:31 AM PT
The pound rose to the strongest level in 2 1/2 years against the dollar as Bank of England Chief Economist Spencer Dale said investors’ bets that U.K. interest rates will increase within two years were reasonable.
Sterling advanced for a third day versus the U.S. currency as American retail sales unexpectedly slumped by the most since June 2012. The pound fell versus the euro after jumping the most in eight weeks yesterday when Governor Mark Carney revised the central bank’s interest-rate guidance, fueling bets he will struggle to hold down borrowing costs. U.K. government bonds rose after yields climbed to a two-week high.
“The U.K. economic outlook has improved,” said Ian Stannard, head of European currency strategist at Morgan Stanley in London. “While the Bank of England’s fine-tuning of its forward guidance may have added uncertainty to the interest-rate outlook, sterling will be supported at least in the near term by optimism about the recovery.”
The pound rose 0.2 percent to $1.6631 at 4:26 p.m. London time after climbing to $1.6673, the highest level since May 2011. The U.K. currency dropped 0.3 percent to 82.18 pence per euro after jumping 1.2 percent yesterday, the biggest advance since Dec. 18.
Sterling has strengthened 12 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid speculation an improving economy will bring forward interest-rate increases. The euro rose 5.3 percent and the dollar gained 3.5 percent.
The market forecasts rates “remaining on hold until about the spring of next year and then rising to around 2 percent by the end of 2016 and on that forecast, on that basis, we have a forecast in which the economy looks pretty good,” Dale said in a BBC Radio 5 interview. “Based on what we know now, that profile for interest rates looks reasonable.”
Carney yesterday presented new quarterly forecasts along with a revision to the forward-guidance policy, replacing an unemployment threshold with a range of indicators, including spare capacity. The Bank of England increased its growth estimates and now sees expansion of 3.4 percent this year.
U.S. retail sales fell 0.4 percent in January after a revised 0.1 percent decline the prior month, the Commerce Department said. The median forecast of economists surveyed by Bloomberg was for no change.
U.K. government bonds rose for the first time in four days as stocks declined around the world, spurring demand for the safety of fixed-income securities.
The yield on the benchmark 10-year gilt fell three basis points, or 0.03 percentage point, to 2.79 percent after rising to 2.83 percent yesterday, the highest level since Jan. 29. The 2.25 percent bond maturing in September 2013 rose 0.21, or 2.10 pounds per 1,000-pound face amount, to 95.47.
Gilts returned 1.2 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries gained 1.3 percent while German securities gained 1.7 percent.