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Pound Advances From Three-Year Low on Bets Decline Was Excessive

The pound strengthened from a three-year low against the dollar amid speculation a selloff in the past week was excessive before minutes of this month’s Bank of England monetary policy meeting are released next week.

Sterling dropped to the weakest since June 2010 yesterday when a report showed U.K. manufacturing unexpectedly shrank in May, casting doubt on the strength of the recovery. Consumer-and producer-price inflation reports are scheduled for July 16, with the details of Mark Carney’s first meeting as Bank of England governor due the following day. The dollar fell versus most major peers today before Federal Reserve Chairman Ben S. Bernanke speaks on the economy. U.K. government bonds rose.

“The pound seems to be finding some support against the dollar after the recent decline,” said Roberto Mialich, a currency strategist at UniCredit SpA (UCG) in Milan. “But that doesn’t change a longer-term outlook that sterling should remain under pressure because of the Bank of England’s policy.”

The pound rose 0.4 percent to $1.4933 at 4:29 p.m. London time after dropping to $1.4814 yesterday, the lowest level since June 23, 2010. The U.K. currency was little changed at 85.97 pence per euro after depreciating to 86.69 pence yesterday, the weakest since March 14.

Sterling slumped 1.7 percent in the past week, the worst performer of 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes. The dollar strengthened 0.9 percent, while the euro declined 0.6 percent.

Record Low

The Bank of England signaled last week it would keep U.K. interest rates at a record low for longer than investors anticipated, weighing on the currency. It left its benchmark interest rate at 0.5 percent and kept the size of its bond-purchase program at 375 billion pounds.

Policy maker David Miles speaks in London tomorrow on household-debt repayment. Miles, who has voted for additional bond purchases every month since November, said on June 26 that he didn’t “think we should be in a hurry in the U.K. to move the monetary policy dials to more normal settings.”

Bernanke will probably use a “dovish tone” to avoid market stress after investors mistook his plan to reduce bond purchases for a signal on tighter monetary policy, Jane Foley, a senior currency strategist at Rabobank International in London, wrote today in a note to clients.

The Fed chairman sparked a global rout in fixed-income assets on June 19 when he said the central bank could reduce stimulus if the U.S. job market improves.

Gilts Rise

The benchmark 10-year gilt yield fell two basis points, or 0.02 percentage point, to 2.41 percent after declining five basis points yesterday. The 1.75 percent bond maturing in September 2022 climbed 0.185, or 1.85 pounds per 1,000-pound face amount, to 94.595.

The Debt Management Office plans to auction 2.5 billion pounds of gilts due in January 2044 tomorrow. It last sold 30-year securities on May 16 at an average yield of 3.293 percent.

Gilts maturing in 25 years or longer handed investors a 5.9 percent loss in the three months through June, according to Bank of America Merrill Lynch indexes, the biggest quarterly decline since the period ended March 2009.

U.K. gilts dropped 3.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 1.2 percent and Treasuries fell 3.4 percent, the indexes show.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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

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