Pound Falls From One-Week High Versus Euro Amid BOE Speculation

The pound fell from a one-week high against the euro before a jobs report this week amid speculation the Bank of England will reduce its threshold for reviewing when to start increasing interest rates.

The U.K. currency swung between gains and losses versus the dollar. The unemployment rate declined to 7.3 percent in the three months through November, according to a Bloomberg survey before the data is released on Wednesday. Policy makers won’t consider raising borrowing costs at least until unemployment drops to 7 percent, Bank of England Governor Mark Carney said in August. U.K. government bonds were little changed.

“There’s little doubt in my mind that the 7 percent rate will be moved,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London. “There’s definitely scope for doubts about rates and once that is thrown into the market you are going to get a market very long of sterling and it’s going to come right back again.” A long position is a bet the currency will appreciate.

The pound weakened 0.2 percent to 82.58 pence per euro as of 4:09 p.m. London time after appreciating to 82.33 pence, the strongest since Jan. 9. The U.K. currency was little changed at $1.6427 after rising and falling as much as 0.2 percent.

Sterling strengthened 7.8 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 2.9 percent, while the dollar dropped 0.6 percent.

Forward Guidance

More than 60 percent of respondents to a Bloomberg survey this month said Carney will refine the flagship policy when the central bank publishes its quarterly Inflation Report on Feb. 12. Almost a third of economists said the jobless rate will fall to 7 percent in the first half of the year, a level that will require Carney to consider raising borrowing costs.

The pound earlier climbed to a one-week high against the euro after property-website operator Rightmove Plc said asking prices for homes in England and Wales rose 1 percent this month, after dropping 1.9 percent in December.

“Housing is relatively strong and is something on the inflationary side,” said Georgette Boele, global head of foreign-exchange and commodity strategy at ABN Amro Bank NV in Amsterdam. “It could be a reason for the Bank of England to be a bit more hawkish. We have a more optimistic outlook for the U.K. economy, above consensus compared to the euro zone.”

ABN Amro forecasts the pound will strengthen to 79 pence per euro by year-end, Boele said. The median estimate of analysts surveyed by Bloomberg is for it to reach 81 pence.

IMF Forecasts

The IMF will upgrade its 2014 forecast for U.K. growth to 2.4 percent from 1.9 percent, Sky reported without saying where it got the information. Britain’s outlook has improved and gross domestic product will increase 2.7 percent this year, up from an estimated 1.9 percent in 2013, the E&Y Item Club said in a separate report published today.

The 10-year gilt yield was at 2.82 percent after dropping to 2.80 percent on Jan. 17, the lowest since Dec. 2. The price of the 2.25 percent bond due in September 2023 was 95.195.

The Debt Management Office is scheduled to auction 3.25 billion pounds of the benchmark 10-year gilts on Jan. 23. The U.K. last sold securities due in March 2025 on Dec. 3 at an average yield of 2.977 percent, up from 2.732 percent at a previous sale of 10-year bonds on Nov. 19.

Gilts lost 1.6 percent in the 12 months through Jan. 17, according to Bloomberg World Bond Indexes. Treasuries fell 2 percent, while German securities returned 0.5 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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