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Pound Gains Most in 2 Weeks Versus Dollar on Bets BOE to Hold QE

The pound rose the most in almost two weeks against the dollar amid speculation that the Bank of England will refrain from increasing its monetary stimulus at the end of a two-day policy meeting tomorrow.

Sterling advanced against most of its 16 most major peers after Lloyds Banking Group Plc’s Halifax unit said that house prices rose in April more than economists predicted. The central bank’s Monetary Policy Committee will keep the target for its program of bond purchases known as quantitative easing at 375 billion pounds ($584 billion), according to all but one of 44 economists surveyed by Bloomberg. Gilts rose as the U.K. sold 30-year inflation-linked securities at a record-low yield.

“I certainly see further sterling strength,” said Michael Hewson, a market analyst at CMC Markets Plc in London. “It’s very unlikely the Bank of England will do any further quantitative easing between now and the third quarter. I don’t see too much downside in it.”

Sterling gained 0.5 percent to $1.5563 at 5:03 p.m. London time after climbing as much as 0.7 percent, the most since April 25. The pound fell 0.2 percent to 84.65 pence per euro.

The pound may climb to $1.58 in the next few weeks if it manages to stay above $1.5410, Hewson said.

Minutes of the central bank’s meeting will be published on May 22. In April, King and two other MPC members wanted to increase QE and were outvoted by a majority on the nine-member panel.

Home values rose 1.1 percent from March, when they increased by a revised 0.4 percent, Halifax said. The median prediction of 11 economists in a Bloomberg survey was for prices to gain 0.2 percent.

Retail Sales

Sterling advanced against the dollar even as a report showed retail sales dropped last month, highlighting that the recovery is still uneven.

Sales at stores open at least 12 months, measured by value, dropped 2.2 percent in April from a year earlier, the British Retail Consortium said. The median forecast of economists surveyed by Bloomberg was for a gain of 1.9 percent.

The U.K. currency has strengthened 2.1 percent in the past month, the best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, as data from gross domestic product growth to construction output boosted bets the economy is recovering. The dollar fell 0.3 percent, while the euro gained 1.2 percent.

“The BRC retail sales monitor was disappointing and broke the recent cycle of encouraging news for the economy,” Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London, wrote in an e- mailed report. “The slightly lower number hasn’t particularly hurt sterling for now.”

Record Yield

The 10-year gilt yield fell two basis points, or 0.02 percentage point, to 1.77 percent after rising to 1.81 percent yesterday, the highest since March 26. The 1.75 percent securities due September 2022 rose 0.15, or 1.50 pounds per 1,000-pound face amount, to 99.82.

The Debt Management Office sold 1.1 billion pounds of inflation-linked bonds maturing in 2044 at a so-called real yield of minus 0.234 percent, the lowest since Bloomberg started compiling the data in 2006.

Demand for the securities has been supported as investors boosted bets that consumer price increases will accelerate as the Bank of England focuses on boosting the economy.

Britain’s 30-year break-even rate, a gauge of expectations of inflation derived from a difference in yields between gilts and index-linked securities, increased one basis point to 3.38 percentage points. It earlier reached 3.39 percentage points, the most since April 12.

Gilts returned 1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 0.5 percent and Treasuries rose 0.4 percent.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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