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U.K. Pound Little Changed Before Bank of England Policy Decision - (Bloomberg)

Posted by Chris Advincula on Nov 7, 2013 4:42:00 AM

The pound was little changed versus the dollar before the Bank of England announces its policy decision, with economists forecasting officials will keep the key rate and bond-buying target unchanged.

Sterling was about 0.4 percent from the strongest level in five weeks versus the euro as the European Central Bank also prepared to announce its monthly monetary policy decision, with three of 70 economists in a Bloomberg survey predicting a rate cut. Bank of England Governor Mark Carney will present new economic projections next week, with Goldman Sachs Group Inc. among those forecasting the central bank will improve its outlook. U.K. government bonds were little changed.

“I can’t see anything that’s going to come from the BOE today that’s going to affect sterling,” said Jeremy Hale, head of macro strategy at Citigroup Inc. in London. “Sterling is going to do well, the data have been strengthening. There are a lot of people looking for the ECB to do something on the euro.”

The pound traded at $1.6072 as of 9:24 a.m. London time from $1.6081 yesterday. The U.K. currency was at 84.11 pence per euro after appreciating to 83.79 pence yesterday, the strongest level since Oct. 3.

The central bank’s nine-member Monetary Policy Committee, led by Carney, will leave its asset-purchase target at 375 billion pounds, according to all 46 analysts in a Bloomberg News survey. Officials will hold the benchmark interest rate at 0.5 percent, a separate Bloomberg survey shows.

Sterling’s Rally

The central bank has said it will keep the key rate at a record low until unemployment, currently at 7.7 percent, falls below 7 percent.

“Everyone anticipates that the BOE is going to remain on hold for quite some time,” Jane Foley, a London-based senior currency strategist at Rabobank International, said of the decision, due noon London time. “It will be interesting to see whether going on from here, the rhetoric gets more hawkish.”

Sterling has rallied 4.3 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as improving economic data prompted investors to increase bets the central bank would raise borrowing costs earlier than it predicted. The euro climbed 3.8 percent and the dollar gained 0.1 percent.

U.K. services output expanded at the fastest pace in 16 years in October, while industrial production increased more in September than economists forecast, data this week showed.

‘Long Pound’

“The recovery that you’re seeing in the U.K. is very strong,” Jens Nordvig, managing director of currency research at Nomura Holdings Inc., Japan’s biggest brokerage said in an interview on Bloomberg Television’s “Countdown” with Jonathan Ferro and Anna Edwards. “We really like long pound trades,” he said referring to bets that the currency will appreciate.

“We haven’t expressed them against the euro,” Nordvig said. “We’ve expressed it against other European currencies. Swiss and Swedish are the ones we have right now.”

U.K. government bonds declined and the pound was little changed after the Bank of England’s previous policy decision on Oct. 10, when the MPC left its key interest rate and stimulus program unchanged.

The ECB will leave its main refinancing rate at 0.5 percent, according to the median estimate of economists surveyed by Bloomberg. Bank of America Corp., Royal Bank of Scotland Group Plc and UBS AG predict the central bank will reduce borrowing costs by 25 basis points.

The benchmark 10-year gilt yield was at 2.71 percent after rising to 2.74 percent on Nov. 5, the highest since Oct. 22. The price of the 2.25 percent bond due in September 2023 was 96.025.

U.K. gilts lost 2.9 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 1.3 percent and U.S. Treasuries declined 2.2 percent. 

 

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Chart: WorldWideMarkets Alpha Trader

 

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