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Pound Reaches 5-Month High Versus Dollar as QE Bets Fade

The pound strengthened to the highest in more than 19 months against the euro for a second day on speculation the Bank of England will pause its stimulus program next month amid signs the U.K. economy is improving.

Sterling slipped from the strongest level in five months versus the dollar. Minutes of the Bank of England’s latest meeting released yesterday showed officials said inflation may be quicker than previously forecast. The Monetary Policy Committee agreed on April 4-5 to keep its target for so-called quantitative easing at 325 billion pounds ($521 billion). Benchmark 10-year gilts fell for a third day as the U.K. sold index-linked bonds maturing in March 2029 at a negative yield.

“There’s still a bit of a half-life occurring from the Bank of England minutes yesterday,” said Lauren Rosborough, a senior foreign-exchange strategist at Societe Generale SA in London. “It’s taking away the probability of further QE any time soon. I expect sterling to outperform for the next three to four months.”

The pound appreciated 0.1 percent to 81.82 pence per euro at 4:42 p.m. London time after touching 81.62 pence, the strongest level since Aug. 26, 2010. The U.K. currency climbed 0.2 percent to $1.6053. It reached $1.6079, the highest since Nov. 14.

Sterling has risen 1.6 percent in the past month, the second-biggest gain of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the best performer, gaining 2.9 percent, while the dollar rose 0.4 percent.

Growth Signs

U.K. reports over the past week showed consumer-price inflation unexpectedly accelerated for the first time in six months in March, and asking prices for U.K. homes increased to a record this month.

The Bank of England minutes showed policy maker Adam Posen ended his push for further stimulus, bringing him in line with the majority of the nine-member Monetary Policy Committee in seeking no change to the asset-purchase target.

The central bank’s position contrasts with the U.S. and Japan where policy makers have indicated they are considering further stimulus. Bank of Japan (8301) Governor Masaaki Shirakawa said yesterday that the bank is “committed” to monetary easing, while Federal Reserve Vice Chairman Janet Yellen on April 11 endorsed the Fed’s view that borrowing costs are likely to stay low through 2014.

The 10-year gilt yield climbed two basis points to 2.16 percent. The 4 percent security due March 2022 fell 0.230, or 2.30 pounds per 1,000-pound face amount to 116.325.

The Debt Management Office sold 1.35 billion pounds of inflation-linked bonds due in March 2029. The securities were auctioned at an average yield of minus 0.045 percent, compared with minus 0.188 percent at the previous sale on Feb. 2.

The Debt Management Office will sell as much as 3 billion pounds of bills tomorrow.

Gilts handed investors a loss of 1.9 percent in the first quarter, the worst start to a year since 1996, according to Bank of America Merrill Lynch indexes. They have returned 0.5 percent this month.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

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

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