The pound strengthened to a one-year high versus the euro after the Bank of England maintained its monetary policy and refrained from providing additional guidance on the future path of interest rates.
Sterling approached the strongest in two years against the dollar as the central bank left its asset-purchase target at 375 billion pounds ($617 billion) and the benchmark interest rate at a record-low 0.5 percent. Bank of England Governor Mark Carney introduced forward guidance on borrowing costs in August and pledged to keep the main interest rate at an all-time low as long as unemployment, currently at 7.4 percent, remains above 7 percent. U.K. government bonds were little changed.
“There was some small speculation that the Bank might protest against the recent run-up in short rates,” said Josh O’Byrne, a foreign-exchange strategist at Citigroup Inc. in London. “That’s why investors were a little bit more cautious on sterling before the decision. Given the all clear, sterling has bounced a little. Citi economists don’t expect they are going to adjust the thresholds for forward guidance in February.”
Sterling was little changed at 82.56 pence per euro as of 4:44 p.m. London time after appreciating to 82.31 pence, the strongest since Jan. 11, 2013. The pound rose 0.1 percent to $1.6461 after climbing to $1.6603 on Jan. 2, the highest since August 2011.
Before today’s announcement, Jefferies International Ltd. forecast the Bank of England would lower the guidance threshold to 6.5 percent in February, when policy makers will have new growth projections. JPMorgan Chase & Co. said Carney won’t revise guidance at all. The BOE will publish the minutes of this month’s meeting on Jan. 22.
Britain’s goods trade deficit narrowed to 9.44 billion pounds in November from a revised 9.65 billion pounds the previous month, the Office for National Statistics said today. Sales to the European Union, the destination for half of British exports, rose 4.8 percent, while those to countries outside the region fell 0.7 percent, the statistics office said.
The pound gained 8.7 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid speculation a strengthening economy will prompt the Bank of England to increase borrowing costs. The euro rose 3.9 percent, while the dollar dropped 2.9 percent.
“We still don’t see the first rate hike until the end of next year,” said Adam Myers, European head of foreign-exchange strategy at Credit Agricole Corporate & Investment Bank in London. “Everyone has their balance of risks on an earlier tightening. We still think sterling rallies against the euro, but not against the dollar.”
Benchmark 10-year yields were at 2.98 percent after climbing to 3.08 percent on Jan. 2, the highest level since July 2011. The price of the 2.25 percent gilt maturing in September 2023 was 93.925.
U.K. gilts lost 2.7 percent in the 12 months through yesterday, according to Bloomberg World Bond Indexes. German securities fell 0.9 percent and U.S. Treasuries declined 2.9 percent.