The pound’s world-beating rally is on hold before Bank of England Governor Mark Carney presents the quarterly Inflation Report tomorrow, according to Canadian Imperial Bank of Commerce and Nomura International Plc.
The pound fell against all but two of its 16 major peers today, even as an industry report showed a gauge of retail sales unexpectedly rose by the most in three years in April. Sterling gained versus all of its Group-of-10 peers in the month through yesterday. U.K. government bonds rose.
“It may be the case that sterling’s run is having a pause for thought,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The burden of proof to provide a positive surprise from a sterling perspective gets ever higher. It may have to wait for Mr. Carney, but one could argue that is already priced in.”
The pound slid 0.2 percent to $1.6837 at 4:49 p.m. London time. It reached $1.6996 on May 6, the highest since August 2009. Sterling fell 0.5 percent against the South African rand and the New Zealand dollar.
The U.K. currency has rallied in the past month as traders bet stronger growth will lead the central bank to bring forward its plans to increases rates. Derivatives based on the sterling overnight interbank average showed expectations policy makers will increase rates by 25 basis points in March, compared with April as recently as last week. The Bank of England’s benchmark interest rate has been at a record-low 0.5 percent since March 2009.
Sterling rose 0.1 percent to 81.45 pence per euro today. It touched 81.36 pence, the strongest level since Jan. 9, 2013, after a gauge of German investor confidence declined for a fifth month. The Wall Street Journal reported that Germany’s Bundesbank is willing to back stimulus measures from the European Central Bank next month if staff forecasts show a lower 2016 inflation outlook.
Sterling has gained 1 percent in the past month, the best performer after the Canadian dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro weakened 1.1 percent, while the dollar advanced 0.3 percent.
A report tomorrow will show the U.K. unemployment rate dropped to 6.8 percent in the three months through March, a more-than five-year low, according to economists in a Bloomberg News survey. Carney is also scheduled to present the central bank’s quarterly Inflation Report, which will include updated economic forecasts.
The British Retail Consortium and KPMG said today that like-for-like retail sales climbed 4.2 percent last month, the most since April 2011 and exceeding the 1.6 percent median forecast in a Bloomberg survey.
Today’s data helped send the FTSE 100 Index of U.K. stocks to a 14-year high.
“The pound just seems to be running out of steam,” said Lee McDarby, executive director of U.K. corporate foreign-exchange sales at Nomura International in London. “There won’t be much positive activity in the pound ahead of jobs data and the inflation report tomorrow morning. On that basis it just seems to be drifting a little. Wednesday could potentially be a big day for sterling if all goes well.”
U.K. 10-year (GUKG10) gilt yields fell five basis points, or 0.05 percentage point, to 2.68 percent after reaching 2.74 percent, the highest since April 4. The 2.25 percent gilt maturing in September 2023 rose 0.405, or 4.05 pounds per 1,000-pound face amount, to 96.45. The two-year rate also slid five basis points, to 0.74 percent after reaching 0.80 percent, the highest since July 8, 2011.
Gilts returned 2.8 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds gained 3.2 percent and Treasuries earned 2.5 percent.