Pound Falls 2nd Day as BOE Links Benchmark Rate to Unemployment
The pound fell for a second day versus the dollar as the Bank of England linked its outlook for interest rates to unemployment and inflation, pledging to keep current policy until the jobless rate falls to 7 percent.
Sterling fell against all except two of 16 major counterparts as central bank governor Mark Carney holds a press conference in London to outline the strategy. The central bank said the 7 percent level is a threshold, not a “trigger,” and will provide a point at which the Monetary Policy Committee will reassess its stance. U.K. two-year government bonds rose, while 10-year gilts declined.
“The fact that he’s tied it to unemployment obviously surprised a lot of people” and pushed the pound lower, said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “He’s put in a very dovish slant to the economic outlook, so definitely keeping things very accommodative for a prolonged period.”
The pound dropped 0.4 percent to $1.5292 at 10:56 a.m. London time after weakening as much as 0.9 percent. Sterling depreciated 0.2 percent to 86.86 pence per euro.
The 10-year gilt yield climbed five basis points, or 0.05 percentage point, to 2.52 percent. The 1.75 percent bond due September 2022 dropped 0.35, or 3.50 pounds per 1,000-pound face amount, to 93.76.
The two-year yield fell one basis point to 0.37 percent.
Bank of England officials also said they stand ready to expand their bond-purchase program from the current 375 billion pounds if needed. They also plan not to unwind quantitative easing and will reinvest any cash flows from maturing gilts while the jobless rate remains above the threshold.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh News at firstname.lastname@example.org