Pound Has Worst Losing Run Since 2010 as Gilts Jump

The pound fell for a sixth week against the dollar, its longest run in four years, as investors pushed back their expectations for the timing of the Bank of England’s first interest-rate increase since 2007.

Sterling weakened for a third day against the euro even as a report today showed U.K. gross domestic product expanded 0.8 percent in the second quarter, in line with a previous reading. BOE Governor Mark Carney said two days ago that policy makers will pay more attention to Britain’s ailing wage growth when deciding on interest rates. U.K. government bonds advanced, with 10-year yields dropping to the lowest in more than a year, after Ukraine said it destroyed part of a military convoy from Russia.

“The key that drove sterling in the second quarter of this year was quite specifically the expectation that the Bank of England was going to be ahead of central banks in terms of hiking rates,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “It’s about the interest-rate story rather than anything else and I don’t think that GDP number radically changes the picture.”

Sterling was little changed at $1.6685 at 4:07 p.m. London time after dropping to $1.6658 yesterday, the least since April 8. The currency declined 0.5 percent this week, the longest run of losses since June 2010. The pound depreciated 0.1 percent to 80.20 pence per euro, after touching 80.36 pence yesterday, its weakest level since June 12.

Rate Outlook

Analysts at Citigroup Inc. and Berenberg pushed back their forecasts for a BOE interest-rate increase to the first quarter of 2015, from the fourth quarter of 2014 previously. The key rate will rise to 2.50 percent around mid-2016, from a previous forecast of the end of 2015, Citigroup economists including London-based Michael Saunders wrote in a client note.

“The decision remains finely balanced,” Rob Wood, chief U.K. economist at Berenberg in London, wrote in an e-mailed report. “The BOE will not wait too long before hiking.”

The Bank of England’s official bank rate has been at a record-low 0.5 percent since March 2009.

Forward contracts based on the sterling overnight interbank average, or Sonia, show investors have pushed back bets on a 25 basis-point increase in borrowing costs to May, from February before the central bank released its Aug. 13 Inflation Report.

Ukraine Conflict

U.K. government bonds advanced as investors sought the safest assets after Ukrainian military spokesman Andriy Lysenko told reporters that troops had destroyed part of an armed convoy that had crossed the border from Russia. The government earlier said Russia is still supplying rebels in the eastern part of the country with equipment.

The 10-year gilt yield fell eight basis points, or 0.08 percentage point, to 2.36 percent, and touched 2.34 percent, the lowest since Aug. 1 2013. The rate dropped nine basis points this week, the longest run of declines since June 2012. The 2.25 percent bond due in September 2023 rose 0.645, or 6.45 pounds per 1,000-pound face amount, today, to 99.095.

Gilts returned 6.1 percent this year through yesterday, Bloomberg World Bond Indexes show. That compares with a gain of 6.5 percent for German securities and 4.1 percent for Treasuries.

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