Pound Strengthens as Carney Reported Saying No Need for More QE
The pound rose toward an eight-month high against the dollar after Bank of England Governor Mark Carney told a U.K. newspaper he saw no case for further asset purchases as the recovery has gained traction.
Sterling extended a fourth weekly gain, the longest run in a year, as Carney told the Yorkshire Post that policy makers would consider expanding quantitative easing only if the economy faltered. The pound rose versus all but two of its 16 major counterparts as a gauge of U.K. consumer confidence climbed to the highest level in almost six years and house prices increased. U.K. government bonds rose with German bunds as European stocks declined, boosting demand for safer assets.
“This sits with the tone we’ve seen recently from the Bank of England, where there was an absence of very dovish rhetoric,” said Jane Foley, senior currency strategist at Rabobank International in London. “The message is that there may be further asset purchases should the recovery stall but the data suggest that things are returning to normal. The market has quashed most of its hopes that there could be more QE.”
The pound gained 0.6 percent to $1.6133 at 4:32 p.m. London time after climbing to $1.6163 on Sept. 18, the highest since Jan. 11. Sterling has strengthened 0.8 percent this week, the longest run of weekly gains since September 2012. The U.K. currency appreciated 0.2 percent to 83.95 pence per euro.
Carney spoke during a visit to the northern city of Leeds, according to the Yorkshire Post.
“My personal view is, given the recovery has strengthened and broadened, I don’t see a case for quantitative easing and I have not supported it,” he said in an interview with the newspaper published today on its website.
GfK NOP Ltd.’s consumer-sentiment index increased to minus 10 this month, the highest since November 2007, from minus 13 in August, the London-based group said. U.K. house prices rose 0.9 percent after climbing a revised 0.7 percent in August, according to Nationwide Building Society.
The pound has risen 6.8 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 6 percent, while the dollar weakened 0.6 percent.
U.K. 10-year gilts rose for a fifth day as speculation the Italian government will collapse sent European stocks lower.
Italy’s Prime Minister Enrico Letta meets President Giorgio Napolitano today to discuss the government’s prospects for survival after former premier Silvio Berlusconi’s allies this week threatened to step down from the coalition if he is expelled from the Senate. The Stoxx Europe 600 Index of shares slipped 0.3 percent.
The benchmark 10-year gilt yield fell four basis points, or 0.04 percentage point, to 2.71 percent after dropping to 2.70 percent, the lowest since Aug. 27. The 2.25 percent bond maturing in September 2023 rose 0.3, or 3 pounds per 1,000-pound face amount, to 95.995. The yield has declined 21 basis points this week.
Gilts still handed investors a loss of 3.3 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities fell 1.7 percent and Treasuries declined 2.5 percent.
The Treasury said today Chancellor of the Exchequer George Osborne will introduce annual checks with the Bank of England’s Financial Policy Committee on whether his Help-to-Buy program is fueling excessive price increases in the housing market.
“The pound is deriving support from Governor Carney’s comments on QE,” Derek Halpenny, European head of global-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a note to clients. “More interesting to us was the news that Chancellor Osborne will give the Financial Policy Committee some control over containing how the Help-to-Buy scheme is implemented.”
That will provide greater policy flexibility and remove the potential burden on interest rates as a tool for managing the economy and help anchor expectations for when the central bank eventually raises interest rates, Halpenny wrote.