The pound fell against the dollar, extending a second weekly decline, as speculation the Federal Reserve is moving closer to ending stimulus boosted demand for the U.S. currency.
Sterling dropped to a six-week low versus the greenback after U.S. reports showed consumer sentiment rose in May and an index of leading indicators climbed in April. Fed Bank of San Francisco President John Williams said yesterday that U.S. policy makers may begin to reduce asset purchases in the next few months. Gilts were little changed this week as Bank of England policy maker Martin Weale said expectations for the central bank to keep interest rates low reflected his own view.
“It’s the dollar leg of the equation that continues to be the primary mover of the pound,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “Williams’s comments have provided dollar support, even if he is a non-voter. With the U.S. looking further ahead in the discussion of pulling back stimulatory policy, cable looks vulnerable,” he said, referring to the pound-dollar rate.
The pound declined 0.6 percent to $1.5172 at 5 p.m. London time after dropping to $1.5162, the weakest level since April 4. The currency has fallen 1.2 percent this week. Sterling depreciated 0.2 percent to 84.49 pence per euro.
The dollar rose against all 16 of its major counterparts after Williams said the Fed may start to reduce the pace of its $85 million of monthly asset purchases as early as this summer and end the program entirely later this year.
Sterling extended its decline as a report showed the Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 83.7 in May, the highest since July 2007, from 76.4 the prior month. Separate data showed the Conference Board’s gauge of the outlook for the next three to six months climbed 0.6 percent in April.
Bank of England minutes have shown Governor Mervyn King voted to boost the central bank’s bond-purchase program from 375 billion pounds at each meeting since February, though he has been outvoted by other members of the Monetary Policy Committee. The minutes of the May 8-9 gathering will be released May 22.
The pound has weakened 2.3 percent this year, the second-worst performer after the yen of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar strengthened 5.4 percent and the euro rose 2.1 percent.
Gilts completed their first weekly gain in a month as Weale said in a speech in Birmingham, England, that upward inflation pressures “have eased somewhat.”
“The market signal pointing to low interest rates for some time to come is certainly at present consistent with the way I see the outlook for the economy and the balance of risks affecting inflation and output,” he said.
The U.K. 10-year gilt yield rose two basis points, or 0.02 percentage point, today to 1.88 percent. The 1.75 percent bond due in September 2022 fell 0.195, or 1.95 pounds per 1,000-pound face amount, to 98.86. The rate dropped less than one basis point this week.
The 10-year yield climbed above that of its French counterpart today for the first time since April 2011, according to data compiled by Bloomberg based on closing prices. The French 10-year yield fell two basis points to 1.86 percent.
U.K. gilts returned 0.2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 0.4 percent and Treasuries rose 0.1 percent.
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