Pound Gains for Second Week on Bets BOE Will Pause QE

The pound strengthened for a second week versus the dollar on speculation the central bank will pause its stimulus program even after the nation slipped back into recession.

Sterling climbed to a 22-month high against the euro as investors sought the safety of the U.K. currency after Standard & Poor’s downgraded Spain’s credit rating. The pound rose to the highest since September versus the dollar after a U.S. report showed growth in the world’s largest economy slowed last quarter. Gilts completed a weekly gain.

“You look across most other countries and the sense is that whilst the U.K. had a surprise with the gross domestic product data, the general drift of data and monetary policy sentiment has tended to be weaker elsewhere,” said Steven Barrow, an analyst at Standard Bank Plc in London. “If the U.K. stood out more in terms of weakness of the economy then perhaps the pound would have suffered.”

The pound gained 0.8 percent this week to $1.6243 at 5:05 p.m. London time yesterday after rising to $1.6258, the highest since Dec. 1. Sterling appreciated 0.5 percent to 81.59 pence per euro. It reached 81.34 pence yesterday, the strongest level since June 2010.

Bank of England officials will consider whether to extend their asset-purchase program when they meet on May 9-10. The Monetary Policy Committee backed finishing the current 325 billion-pound quantitative-easing program when it last met on April 4-5.

Slower Growth

The pound rose to a five-month high against the dollar yesterday after the U.S. Commerce Department said GDP growth cooled to 2.2 percent from 3 percent in the prior three months.

Britain’s economy unexpectedly shrank in the first three months of the year according to data published April 25, pushing the nation into its first double-dip recession since the 1970s.

The pound has appreciated 1.6 percent over the past month, the second-best performer after the yen among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar dropped 0.4 percent.

The 10-year gilt yield fell five basis points, or 0.05 percentage point, this week to 2.13 percent. The 4 percent bond due in March 2022 gained 0.465, or 4.65 pounds per 1,000-pound face amount, to 116.59.

The Debt Management Office plans to auction as much as 3.75 billion pounds of seven-year notes on May 1, and inflation-linked securities due March 2034 on May 3. The government will sell as much as 3 billion pounds of bills on May 4.

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