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Pound Rises on Outlook for Less Stimulus as SNB Boosts Holdings

The pound strengthened for a second day against the dollar amid speculation the Bank of England will refrain from adding monetary stimulus to the economy when policy makers meet next week.

Sterling gained versus 15 of its 16 major peers after the Swiss National Bank said it boosted the amount of pounds in its foreign-exchange reserves. The U.K. central bank will announce on Nov. 8 whether it will raise its asset-purchase target from 375 billion pounds ($604 billion) after data last week showed gross domestic product grew 1 percent last quarter as the economy emerged from a recession. U.K. 10-year gilts dropped for a second day.

“There are expectations for monetary policy to be less loose and that does support sterling,” said Raghav Subbarao, a foreign-exchange strategist at Barclays Plc in London. “The U.K. GDP last week indicated the underlying trend is much stronger.” The SNB’s decision to increase its holdings was a “slight surprise,” he said.

The pound rose 0.3 percent to $1.6113 at 4:22 p.m. London time after appreciating 0.3 percent yesterday. Sterling rose for the first time in four days against the euro, gaining 0.2 percent to 80.45 pence after dropping 0.5 percent over the previous three days.

Barclays predicts that sterling will strengthen to $1.65 by year-end, Subbarao said.

The Bank of England’s Monetary Policy Committee voted 9-0 to keep its bond-purchase target unchanged at its Oct. 3-4 meeting, according to the minutes released on Oct. 17. Some members “questioned the magnitude of the impact that lower long-term yields on corporate debt and equity would have on the broader economy,” the minutes showed.

Swiss Holdings

Switzerland’s central bank increased the allocation of pounds in its foreign-exchange holdings to 7 percent in the third quarter from 3 percent at the end of June, it said today in a statement. It reduced its holdings of euros to 48 percent from 60 percent.

The pound advanced even after GfK NOP Ltd. said its index of U.K. consumer sentiment declined in September. The gauge dropped to minus 30 from minus 28 in September, the London-based company said in an e-mailed report. A survey tomorrow will show U.K. manufacturing shrank in October, according to the median of 27 economist forecasts in a Bloomberg survey.

Sterling is little changed over the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The currency has fallen 0.3 percent in October against the dollar and declined 1.1 percent versus the 17-nation euro.

The 10-year gilt yield rose three basis points, or 0.03 percentage point, to 1.85 percent, having climbed 13 basis points this month. The 1.75 percent bond due in September 2022 fell 0.245, or 2.45 pounds pence per 1,000-pound face amount, to 99.065.

Gilts returned 2.8 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 1.9 percent.

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