The pound fell to a three-month low versus the dollar after a government report showed the trade deficit widened more than economists forecast, fueling bets the central bank will need to add more stimulus to spur growth.
Sterling declined versus all 16 of its major counterparts and gilts advanced after the British Retail Consortium said shop-price inflation slowed to a 16-month low in December. The Bank of England will keep its bond-purchase target unchanged at 275 billion pounds ($421 billion) at a policy meeting tomorrow, according to a Bloomberg News survey.
“The trade data is worse than expected, and it has negative connotation on sterling,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There is also some outside talk about possibility that the Bank of England may expand the target for bond purchases. The consensus view is that it remains unchanged.”
The pound declined 1 percent to $1.5324 at 5:17 p.m. London time after falling to $1.5309, the weakest level since Oct. 6. Sterling dropped 0.9 percent to 117.91 yen, and slid 0.3 percent to 82.77 pence per euro.
The trade deficit widened to 8.64 billion pounds in November from a revised 7.87 billion pounds in October, the Office for National Statistics said in London. Exports fell 1.5 percent on the month, while imports rose 1.1 percent. Retail- price inflation slowed to 1.7 percent last month from a year earlier, versus 2 percent in November, the British Retail Consortium and Nielsen Co. said.
The yield on the 10-year gilt fell seven basis points to 2.01 percent. The 3.75 percent bond due in September 2021 rose 0.68, or 6.80 pounds per 1,000-pound face amount, to 115.24. Two-year yields dropped four basis points to 0.39 percent.
Gilts stayed higher after the U.K. sold 3 billion pounds of 10-year bonds, with the auction attracting bids for more than twice the amount of debt allotted. The bonds were sold at an average yield of 2.085 percent, compared with 2.382 percent at the previous auction last month.
The implied yield on short-sterling interest-rate futures maturing in March fell three basis points to 1.07 percent, signaling investors are increasing bets that the central bank will further loosen monetary policy.
U.K. government bonds have handed investors a loss of 0.6 percent this year, compared with a decline of 0.3 percent from German bunds and 0.4 percent from U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Gilts outperformed all 26 government bonds tracked by Bloomberg last year.
The pound has fallen 0.9 percent this year and 2.8 percent in the past 12 months, according to Bloomberg Correlation- Weighted Indexes, which track 10 developed-nation currencies.
Sterling will strengthen to $1.56 by year-end, according to a Bloomberg survey of analysts with the most recent forecasts given the heaviest weighting.
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