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Pound Advances Versus Dollar as BOE Maintains Bond-Buying Target

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Oct. 4 (Bloomberg) -- The pound strengthened the most in almost three weeks against the dollar as the Bank of England refrained from boosting its asset-purchase target from 375 billion pounds ($606 billion) at a policy meeting today.

Sterling rallied from a three-week low set yesterday as economists increased their median year-end estimate for the currency to the highest level since November. The pound dropped for a fifth day versus the euro, the longest run of declines since July 2011, after European Central Bank President Mario Draghi said euro-area countries were making progress. Gilts fell, pushing the 10-year yield up the most in almost two weeks.

“Sterling has been a bit soggy recently,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “There’s a little bit of a recovery today. I don’t think any particular positions were taken ahead of the Bank of England meeting.”

The pound rose 0.5 percent to $1.6160 as of 4:53 p.m. London time, after climbing as much as 0.6 percent, the biggest daily increase since Sept. 14. Sterling slipped 0.2 percent to 80.45 pence per euro, after touching 80.52 pence, the weakest since Sept. 19.

The median forecast for the pound against the dollar of 49 analysts surveyed by Bloomberg rose to $1.60 on Sept. 28, up from $1.55 on Sept. 14. FxPro’s Derks said the pound may weaken toward $1.59 this month and reach $1.57 by year-end.

Rate Decision

The Bank of England decision was predicted by all 40 economists surveyed by Bloomberg News. The central bank also kept its key interest rate at a record low 0.5 percent, in line with all 50 estimates in a separate survey.

Sterling has strengthened 0.9 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro gained 1.1 percent, while the dollar weakened 3 percent.

The pound may decline as much as 1.2 percent against the dollar if it breaks through a key level of so-called support, Standard Chartered Plc said, citing trading patterns.

A break below $1.6064, the 23.6 percent Fibonacci retracement of the currency’s appreciation between June 1 and Sept. 21, will open up a decline to $1.5912, the 38.2 percent retracement of that move, Callum Henderson, the Singapore-based global head of currency research at Standard Chartered, wrote in an e-mailed report today.

The Bank of England will increase its bond-buying target by 50 billion pounds in November because U.K. growth is “unlikely to improve,” James Knightley, a senior economist at ING Groep NV in London, wrote in an e-mailed comment.

Housing Data

U.K. house prices fell for a third month in September and will probably remain little changed into 2013 as the uncertain economic outlook constrains property demand, according to Halifax, the mortgage unit of Lloyds Banking Group Plc.

Fitch Ratings said Sept. 28 that U.K. government debt will peak at a higher level and later than it previously predicted. The company affirmed Britain’s AAA credit level and kept the nation on negative outlook, adding that it doesn’t expect to resolve the question mark hanging over the top grade until 2014.

“Growth is still elusive,” John Wraith, a fixed-income strategist at Bank of America Merrill Lynch in London, said in an interview today on Bloomberg TV’s “Countdown” with Mark Barton. “It means the triple-A rating and the fiscal credibility coming into question. The danger of the U.K. losing its rating is growing. Appetite for gilts may start to wane.”

The 10-year gilt yield was two basis points, or 0.02 percentage point, higher at 1.71 percent, after climbing as much as five basis points, the most since Sept. 21. The 1.75 percent security due in September 2022 dropped 0.165, or 1.65 pounds per 1,000-pound face amount to 100.41.

Gilts returned 3.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 3.2 percent and U.S. Treasuries earned 2.4 percent.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

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