Pound Weakens Third Day on Carney Comments
The pound fell for a third day against the euro after Mark Carney, who will become governor of the Bank of England in July, said central banks around the world have room to ease monetary policy further if needed.
Sterling dropped to the weakest level in 13 months versus the common currency after an industry report showed U.K. home prices declined in January from a year earlier. Government data last week showed gross domestic product shrank more than economists forecast, tipping the nation back toward recession. Inflation expectations climbed to the highest since June 2011 on bets for more stimulus. Gilts fell for a third day.
“The market judges what Carney said as being dovish,” said Roberto Mialich, a currency strategist at UniCredit Global Research in Milan. “Economic reports out of the U.K., especially the GDP data, have not looked very encouraging. The pound is likely to remain under pressure.”
The pound depreciated 0.6 percent to 85.73 pence per euro at 4:27 p.m. London time after declining to 85.76 pence, the weakest since Dec. 7, 2011. The U.K. currency fell 0.7 percent to $1.5686 after dropping to $1.5683, the lowest since Aug. 20.
Carney, currently governor of the Bank of Canada, said policy in developed countries isn’t “maxed out” and central bankers can be flexible in meeting inflation goals. The current task of monetary policy is to ensure key economies “achieve escape velocity,” Carney told the World Economic Forum’s annual meeting on Jan. 26 in Davos, Switzerland.
U.K. house prices dropped 0.3 percent in January from a year earlier and were unchanged from the previous month, property researcher Hometrack Ltd. said in a statement.
The pound has had the poorest start to a year versus the euro since the single currency was introduced in 1999, depreciating 5.1 percent since Dec. 31.
Sterling has weakened 3.4 percent this month, the second- worst performer after the yen of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 2.7 percent and the dollar gained 0.5 percent.
The 10-year break-even rate, a gauge of annual inflation expectations derived from the difference between yields on gilts and inflation-linked securities, increased for a sixth day, widening two basis points to 3.15 percentage points, the most since June 2011.
The 30-year break-even rate also rose two basis points to 3.42 percentage points.
“It is understandable that inflation protection is in demand when the incoming Bank of England governor signals he is prepared for it to take some time for inflation to come back down to target,” said Sam Hill, a fixed-income strategist at Royal Bank of Canada in London.
Ten-year gilt yields rose five basis points, or 0.05 percentage point, to 2.10 percent. The 1.75 percent bond maturing in September 2022 fell 0.395, or 3.95 pounds per 1,000- pound face amount, to 96.95.
Short-sterling futures advanced as investors added to bets that borrowing costs will stay lower for longer. The implied yield on the December 2013 contract dropped two basis points to 0.58 percent.
The Debt Management Office plans to sell bonds maturing in 2044 through banks this week.
Gilts handed investors a loss of 1.7 percent this month through Jan. 25, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds also dropped 1.7 percent and Treasuries fell 0.8 percent.
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