March 7 (Bloomberg) -- The pound dropped to its weakest level in more than 2 1/2 years versus the dollar amid speculation the Bank of England will announce more stimulus to boost the economy, a policy that typically debases a currency.
Sterling weakened for a third day against the euro after the U.K. Treasury said Chancellor of the Exchequer George Osborne will review the central bank’s inflation target before presenting the annual budget on March 20. While the median estimate of 39 economists in a Bloomberg News survey was for the Monetary Policy Committee to hold its asset-purchase target at 375 billion pounds ($562 billion), 10 of the analysts predicted an expansion. Gilts were little changed.
“The only thing we’ve really got left is easing monetary policy,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “Whether that is today or in April, I think we’ve got a pretty good idea of the way that this going to work. I don’t find it surprising that sterling is under pressure.”
The pound fell 0.2 percent to $1.4991 at 11:08 a.m. London time, after sliding to $1.4967, the lowest since July 13, 2010. Sterling declined 0.5 percent to 86.78 pence per euro.
The U.K. currency will weaken toward $1.40 by the end of the year, Derrick said.
A Treasury spokesman played down a Financial Times report that said Osborne is considering giving the central bank more time to bring inflation back to its 2 percent target, saying it was no more than a reflection of the public debate on the subject and adding that Osborne will consider the Bank of England’s 2 percent inflation target.
The pound has depreciated 6 percent this year, the second-worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 2.9 percent and the euro rose 1.3 percent.
The 10-year gilt yielded 1.94 percent, with the rate on two-year securities at 0.20 percent.
Outgoing central bank Governor Mervyn King and policy makers Paul Fisher and David Miles were defeated in a push for more stimulus at last month’s meeting of the Monetary Policy Committee, minutes of the gathering show.
That vote and a series of comments since the last meeting have created suspense on the next move as officials consider how to help the ailing U.K. economy. With incoming governor Mark Carney, who will replace King as governor in July, suggesting that policy isn’t yet “maxed out,” Deputy Governor Paul Tucker has said he wants to discuss negative interest rates and Markets Director Fisher raised the idea of a prolonged period of bond buying.
“Possibly Dale and Tucker could join in with Miles and Fisher and King, which is five out of the nine and a majority, so you might get 25 billion pounds of extra quantitative easing,” said Marcus Ashworth, head of fixed income at Espirito Santo Investment Bank in London. “The Bank of England knows the U.K. economy is flat-lining so why wait? King wants to go out with his head held high.”
Ashworth spoke in an interview on Bloomberg Television’s “The Pulse” with Francine Lacqua and Manus Cranny.
U.K. government bonds have lost 0.9 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds and Treasuries both fell 0.5 percent.
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