Pound Falls to Two-Week Low Versus Dollar Before Carney Speech

The pound fell to a two-week low versus the dollar before Bank of England Governor Mark Carney delivers a speech amid speculation he will affirm his intention to hold interest rates at an all-time low.

The U.K. currency dropped against 13 of its 16 most-traded peers tracked by Bloomberg and depreciated to the least in three weeks against the euro. Carney has sought to underpin the recovery by introducing interest-rate guidance to damp speculation that borrowing costs will rise. U.K. government bonds advanced after 10-year yields dropped the most since September yesterday. Carney will speak at 1:45 p.m. in Nottingham, England.

“People are set up for dovish comments given that the bank has had little success so far in suppressing forward rate expectations,” said Adam Cole, the London-based head of Group-of-10 currency strategy at Royal Bank of Canada. “The risk is that a reasonably balanced speech today would be perceived as less dovish than expected. The balance of risks is that we get a little bounce” in sterling.

The pound fell 0.6 percent to $1.5452 at 12:55 p.m. London time after dropping to $1.5449, the lowest since Aug. 14. Sterling depreciated 0.2 percent to 86.33 pence per euro after touching 86.40 pence, the weakest level since Aug. 7.

Carney will speak at an event hosted by the Confederation of British Industry. It will include audience questions after the speech. When Carney unveiled the guidance plan on Aug. 7, he took questions for an hour and gave five broadcast interviews.

BOE Policy

Bank of England policy makers left the official bank rate at 0.5 percent and maintained their asset-purchase target, or quantitative easing, at 375 billion pounds at their most recent meeting ended Aug. 1.

The pound has strengthened 4.6 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro gained 4.9 percent and the dollar climbed 2.4 percent.

Yields on two-, five- and 10-year gilts have increased since Carney said on Aug. 7 that officials would not consider raising interest rates before unemployment reached 7 percent so long as price and financial stability weren’t jeopardized.

The yield on the 10-year gilt due in September 2022 fell three basis points to 2.57 percent after dropping 12 basis points yesterday, the biggest slide since Sept. 26. The 1.75 percent security rose 0.2, or 2 pounds per 1,000-pound face amount, to 93.44.

Deputy Governor Charlie Bean said in an Aug. 23 interview in Jackson Hole, Wyoming, that policy makers are sending a “clear signal” they won’t increase interest rates anytime soon.

‘Strong Rally’

“The strong rally in U.K. rates yesterday suggests that the market is anticipating a fightback from Carney,” wrote Jamie Searle, a London-based fixed-income strategist at Citigroup Inc., in an e-mailed report today. “It was also a reaction to Bean’s comments earlier this week. At the very least, Carney is likely to repeat this message loudly and clearly.”

Short-sterling futures advanced today, indicating investors are reducing their bets on higher interest rates. The implied yield on the contract expiring in December 2014 fell two basis points to 0.85 percent.

Investors should buy short-sterling futures contracts expiring between September 2014 and June 2015, expecting the average implied yield to decline about 20 basis points from about 0.94 percent in coming weeks, Citigroup’s Searle wrote.

Gilts lost investors 3.4 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 2.1 percent and Treasuries declined 3.1 percent.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

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

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