By Emma Charlton and Lucy Meakin - Jul 4, 2013
The pound declined toward a five-week low against the dollar as the Bank of England’s Monetary Policy Committee prepared to announce its latest decision three days after Mark Carney joined as Governor.
The U.K. currency weakened against all its 16 major counterparts. The nine-member MPC will keep its quantitative-easing stimulus target and the benchmark interest rate unchanged, according to separate Bloomberg News surveys of economists. The central bank may release a statement, something it doesn’t typically do when there has been no change in policy. U.K. government bonds declined for a second day.
“We think we will get a statement, which breaks with tradition,” said Paul Robson, a senior currency strategist at Royal Bank of Scotland Group Plc in London. “We’re not expecting sterling to react poorly to the fact that we get a statement. The data point to the economy growing, so it’s quite hard for them to justify anything too dovish at this point.”
The pound fell 0.3 percent to $1.5247 at 10:57 a.m. London time. It dropped to $1.5130 yesterday, the lowest since May 30. The U.K. currency depreciated 0.2 percent to 85.34 pence per euro. It reached 85.94 pence on July 2, also the weakest since May 30.
RBS recommends buying the pound against the euro before the meeting, Robson said.
Former Bank of Canada Governor Carney, the first foreigner to run the 319-year-old U.K. central bank, started his new role on July 1. His first policy decision comes as data this week showed services and manufacturing growth accelerated to their fastest in more than two years in June.
Citigroup Inc.’s Economic Surprise Index for the U.K. climbed to 48.90 percent yesterday, the highest level since December. The index shows whether U.K. data beat or fell short of forecasts.
“U.K. data has been unambiguously strong recently, but we remain bearish on the pound,” George Saravelos, a London-based currency strategist at Deutsche Bank AG, wrote in a note to clients. “We don’t think better growth numbers will translate into tighter monetary policy. We expect incoming Governor Carney will introduce verbal guidance” after a review of policy tools concludes in August, he wrote.
The pound will fall toward $1.40, Deutsche Bank predicted, without giving a time frame. Britain’s currency will end the year at $1.50, according to a Bloomberg survey of forecasters.
Policy makers will maintain the asset-purchase target at 375 billion pounds, according to a Bloomberg survey of 44 economists before the announcement at noon London time. They will also leave the benchmark interest rate unchanged at a record-low 0.5 percent, a separate survey shows.
Sterling rose 1.3 percent against the dollar, the steepest gain since August 2010, on June 6 after the previous policy meeting, when the central bank refrained from adding to stimulus at Mervyn King’s final meeting as governor. King failed since February to persuade a majority to back an expansion of stimulus.
The pound has risen 3.7 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market nations. The euro gained 4.3 percent and the dollar climbed 3.6 percent.
U.K. house prices rose last month to the highest in almost three years, a report showed today. Home values increased 0.6 percent from May to an average 167,984 pounds, the most since August 2010, the mortgage unit of Lloyds Banking Group Plc said in a statement in London today.
Benchmark 10-year gilt yields rose two basis points, or 0.02 percentage point, to 2.41 percent. The 1.75 percent security maturing in September 2022 fell 0.14, or 1.40 pounds per 1,000-pound face amount, to 94.58.
Gilts handed investors a loss of 3.3 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 1.3 percent and Treasuries declined 2.9 percent, the indexes show.