Pound Rises Versus Dollar After BOE Holds Rate, Debt-Purchase Program

The pound rose against the dollar to its highest level in eight months after the Bank of England left interest rates at a record low and refrained from increasing its bond-buying program to stimulate the economy.

The U.K. currency also rebounded from near its weakest level since May against the euro. The central bank held the main rate at 0.5 percent, in line with the forecasts of all 60 economists surveyed by Bloomberg News. A report showed U.K. manufacturing output rose 0.3 percent from the previous month, when it gained a revised 0.4 percent, the Office for National Statistics said today. The median forecast of 28 economists in a Bloomberg News survey was for a gain of 0.2 percent.

“The pound jumped as there were a few people out there worrying about the risk of more quantitative easing today, and maybe a few with speculative short positions on the pound,” said Chris Turner, head of foreign-exchange research at ING Groep NV in London. “A move towards further quantitative easing was very unlikely, but there has been this debate in the U.K. in the past two weeks about it coming through.”

The pound climbed as much as 0.8 percent after the decision, breaking above $1.6 for the first time since Feb. 3. It traded 0.3 percent higher at $1.5931 as of 5:05 p.m. in London. Sterling also strengthened 0.3 percent to 87.38 pence per euro, after earlier depreciating to 88.05 pence, the weakest level since May 7.

The bank’s decision to hold its asset-purchase plan at 200 billion pounds ($319 billion) was predicted by 35 of 36 economists in a separate Bloomberg poll, with one forecasting a rise to 250 billion pounds.

Pound Weakness

U.K. government bonds stayed lower, with the 10-year yield rising 3 basis points to 2.93 percent. The two-year yield also climbed 3 basis points to 0.65 percent.

The pound declined 0.3 percent against the dollar and was little changed versus the euro after the central bank’s last policy decision on Sept. 9. The 10-year bond yield jumped 6 basis points that day.

Sterling has lost 4.7 percent this year against a basket of its developed-country peers, according to Bloomberg Correlation- Weighted Currency Indexes, amid speculation that the U.K.’s economic recovery was slowing and in advance of deep spending cuts to reduce the country’s record budget deficit.

A report today showed U.K. house prices plunged in September by the most since at least 1983, when the gauge began. The average cost of a home fell 3.6 percent from August to 162,096 pounds, Halifax said in an e-mailed statement. Property values were 0.7 percent lower than the same month a year earlier.

‘Dovish Comments’

Policy maker Adam Posen last week advocated further asset purchases, or quantitative easing, saying monetary policy “should continue to be aggressive about promoting recovery.” He was backed by the British Chambers of Commerce and the Institute of Directors. Policy maker Andrew Sentance has voted to raise interest rates since June.

“There has been a lot more dovish comments, notably by Posen, during the past month,” Jane Foley, a senior currency strategist at Rabobank International in London, said before the decision. “The minutes of the meeting will be more interesting.”

The European Central Bank today kept its benchmark rate at 1 percent as financial-market tensions complicate its exit from emergency measures. All 52 analysts in a separate Bloomberg survey forecast the outcome.

To contact the reporters on this story: Stephen Morris in London at smorris39@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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