Pound Drops a Second Week on Miles Stimulus Call
Sterling gained for a second day against the euro in a week after the European Central Bank said financial institutions will repay less of its second round of three-year loans next week than economists estimated, indicating European banks are wary of lending to each other. U.K. government bonds were little changed, after 10-year yields dropped the most since September yesterday.
“Miles has always been one of the most dovish members of the Monetary Policy Committee, so in some ways what he was saying wasn’t new,” said Paul Robson, a senior currency strategist at Royal Bank of Scotland Group Plc in London. “However, the underlying theme remains negative for sterling. We still have a target of $1.5050.”
The pound was little changed at $1.5260 as of 4:53 p.m. London time after sliding to $1.5132 yesterday, the lowest since July 2010. It lost 1.7 percent this week after dropping 1.8 percent in the five days through Feb. 15. Sterling added 0.2 percent to 86.31 pence per euro after depreciating to 87.65 pence on Feb. 20, the weakest since October 2011.
“A good case can be made for more expansion,” Miles said in a speech yesterday in Bath, England, adding that asset purchases are not the only possible stimulus. “If there are monetary-policy tools that are more reliably effective in boosting demand, they should be used.”
Bank of England minutes released Feb. 20 showed Miles, along with Governor Mervyn King and Paul Fisher, voted to increase the central bank’s asset-purchase target, a policy known as quantitative easing, by 25 billion pounds to 400 billion pounds at the Feb. 7 meeting.
While Miles had been alone in calling for more stimulus in January, the three were outvoted by the remaining six members of the Monetary Policy Committee, the minutes showed.
The pound gained versus the euro as the ECB said 356 banks will hand back 61.1 billion euros ($80.4 billion) on Feb. 27, the first opportunity for early repayment of the second Longer- Term Refinancing Operation. The median forecast of economists in a Bloomberg News survey was for 122.5 billion euros.
The pound has depreciated 4.9 percent this year, the second-worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 2.1 percent and the euro rose 1.8 percent.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, climbed to 107.4 from 104.3 in January. That’s the fourth consecutive gain and the highest since April.
The 10-year gilt yield rose one basis point, or 0.01 percentage point, to 2.11 percent after earlier adding as much as four basis points. The rate has dropped eight basis points this week, the biggest decline since the five-day period ending Nov. 9. The 1.75 percent bond due September 2022 fell 0.08, or 80 pence per 1,000-pound face amount, to 96.90.
“The gilt market doesn’t know which way to bend in the wind at the moment,” said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. “There’s a lot of volatility but we are just rewinding what happened yesterday.”
U.K. government bonds lost 2.1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds dropped 1.2 percent and Treasuries fell 0.7 percent.