Pound Little Changed as Investors Await BOE Minutes, Carney View

The pound was little changed against the dollar before the Bank of England publishes the minutes of its most recent policy meeting later this week.

Sterling erased a decline versus the greenback after a report showed U.S. retail sales increased less than economists forecast last month. It was also little changed against euro as U.K. home sellers raised asking prices to a record. Benchmark 10-year gilt yields were about five basis points from the lowest level in almost four weeks. The central-bank minutes, due on July 17, will reveal how policy makers voted at Governor Mark Carney’s first gathering.

“The minutes will be absolutely critical because everyone is going be looking at how Carney voted,” said Kathleen Brooks, research director in London at Forex.com, a unit of online currency-trading company Gain Capital Holdings Inc. (GCAP) “If he voted for further bond purchases, we are probably going to see a decline in the pound. The market is recalibrating its view on the fact that Carney is likely to be a dovish force at the Bank of England.”

The pound was at $1.5087 as of 4:31 p.m. London time after falling as much as 0.5 percent. It declined to $1.4814 on July 9, the lowest level since June 2010. The U.K. currency was at 86.40 pence per euro. It reached 86.94 pence on July 11, the weakest since March 13.

Brooks forecast the pound will drop to as low as $1.48 over the next three months.

Home prices sought climbed for a seventh month, increasing 0.3 percent to an average 253,658 pounds, London-based property-website operator Rightmove Plc said.

Pound Pares

U.S. retail sales increased 0.4 percent following a 0.5 percent growth in May, Commerce Department figures showed in Washington. The median forecast of 82 economists surveyed by Bloomberg called for a 0.8 percent advance.

The Bank of England’s Monetary Policy Committee kept its asset-purchase target at 375 billion pounds and held its benchmark rate at a record-low 0.5 percent on July 4. The central bank signaled in a statement that followed the decision that it will keep borrowing costs low for longer than investors had expected.

The U.K. economy will expand 1.1 percent this year, compared with an April forecast of 0.6 percent, the Ernst & Young Item Club said in a report to be published tomorrow. Growth will strengthen to 2.2 percent next year and 2.6 percent in 2015, both faster than previous estimates, it said.

Bets Increase

Futures traders increased their bets that the British pound will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain -- so-called net shorts -- was 34,259 on July 9, compared with net shorts of 31,324 a week earlier.

The pound has weakened 2 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar rose 6.4 percent and the euro gained 5.1 percent.

The 10-year gilt yield was little changed at 2.34 percent. It reached 2.29 percent on July 12, the least since June 20. The price of the 1.75 percent security due in September 2022 was 95.21.

U.K. 10-year gilts yielded 197 basis points more than two-year securities. The average in the past 10 years was 101 basis points, according to data compiled by Bloomberg.

BOE Guidance

Carney is due to announce next month how officials will use forward guidance when setting policy after the central bank gave a signal on rates on July 4. That kind of policy signal and the improvement in the economy will probably widen the gap between short-dated and long-maturity yields further, said Deutsche Bank AG.

“Guidance in any form arguably implies a steeper curve, as the front end could be anchored, while terminal rates can be repriced,” wrote Deutsche Bank strategist Soniya Sadeesh in an e-mailed note dated July 12. “We maintain two- and 10-year steepeners.”

Gilts handed investors a loss of 2.5 percent this year through July 12, according to Bloomberg World Bond Indexes. German bonds declined 0.8 percent and Treasuries fell 2.7 percent.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

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

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