The pound weakened against the dollar after the Bank of England published its quarterly economic forecasts and a review of using forward guidance as a policy tool. Gilts were little changed.
Britain’s currency declined versus all its 16 major peers as Governor Mark Carney began a press conference in London. Sterling reached a one-week high versus the dollar yesterday amid speculation the U.K. economy is gathering pace. Reports in the past week showed that manufacturing, construction and services all improved in July.
Assuming the central bank advocates some sort of forward guidance “the immediate reaction would be to sell sterling,” UBS AG currency strategists Shahab Jalinoos and Geoffrey Yu wrote in a note to clients yesterday.
The pound fell 0.2 percent to $1.5697 at 10:32 a.m. London time and dropped 0.7 percent to 87.25 pence per euro.
The yield on the benchmark 10-year gilt fell one basis point, or 0.01 percentage point, to 2.47 percent. The 1.75 percent security due in September 2022 rose 0.1, or 1 pound per 1,000-pound face amount, to 94.21.
Carney has already taken steps to curb higher market rates, saying at the central bank’s July policy meeting that the “implied rise in the expected future path of Bank rate was not warranted” by economic developments. He introduced forward guidance in April 2009 when he was governor of the Bank of Canada.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at firstname.lastname@example.org