The pound strengthened for a second day against the euro after the Bank of England halted expansion of its bond-buying program and kept its key interest rate at a record low of 0.5 percent.
Sterling gained against most of its major counterparts after the nine-member Monetary Policy Committee led by Governor Mervyn King kept its target for asset purchases at 375 billion pounds ($599 billion) today, ending its third round of so-called quantitative easing. The decision was forecast by 35 of 45 economists in a Bloomberg News survey. The remainder had predicted an increase of as much as 50 billion pounds. Ten-year gilts fell, pushing the yield up from a three-week low.
“U.K. policy makers have been pretty outspoken in believing we’re reaching the end of what QE can achieve,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. “The European Central Bank has more bond buying to do and I think sterling should strengthen versus the euro.”
The pound gained 0.2 percent to 79.74 pence per euro at 4:26 p.m. London time, after reaching 79.61 pence, the strongest level since Oct. 1. Sterling was little changed at $1.5976 after dropping to $1.5930, the weakest since Oct. 23.
Juckes forecast the pound to strengthen to 70 pence per euro within five years. That level hasn’t been reached since November 2007, according to data compiled by Bloomberg.
The pound gained 1.6 percent this year according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro fell 3.4 percent, while the dollar dropped 1.5 percent.
The 10-year gilt yield rose one basis point, or 0.01 percentage point, to 1.77 percent after falling to 1.73 percent, the lowest since Oct. 15. The 1.75 percent bond due in September 2022 dropped 0.08, or 80 pence per 1,000-pound face amount, to 99.835. The rate on 30-year securities was one basis point lower at 3.06 percent.
“Gilts in the five to 10-year sector have given up some ground as a result of today’s BOE announcement and are underperforming bunds,” said Adam McCormack, head of gilt sales at Barclays Plc in London. “The long-end of the curve is holding up well,” he said, referring to longer-maturity bonds.
The difference in yield, or spread, between 10-year gilts and their German equivalents widened by three basis points to 41 basis points, the most since May 29.
Gilts have returned 3.2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 3.9 percent and U.S. Treasuries earned 2.3 percent.