Pound Rises as Miles Says U.K. Economy Will ImproveAnchalee Worrachate
The pound strengthened from a five-month low against the dollar after Bank of England policy maker David Miles said U.K. economic growth is likely to improve to between 2 percent and 2.5 percent a year within 18 months.
The U.K. currency rose for the first time in four days versus the euro before a report tomorrow that economists said will show U.K. mortgage approvals increased in December. Miles, who called for more quantitative easing at this month’s policy meeting, was quoted by the Independent newspaper as saying a pickup in growth may not substantially increase inflation. U.K. government bonds rose as the Debt Management Office sold 4 billion pounds ($6.3 billion) of debt maturing in 2044.
“Given Miles was the only Monetary Policy Committee member to vote for an expansion of stimulus this month, his comments are taken by the market as being hawkish,” said Jane Foley, a senior currency strategist at Rabobank International in London. “That helped to support the pound as some people may have covered short positions on that.” A short position is a bet an asset will decline.
The pound appreciated 0.3 percent to $1.5741 at 4:30 p.m. London time after dropping to $1.5675 yesterday, the lowest level since Aug. 17. The U.K. currency gained 0.2 percent to 85.56 pence per euro after declining to 85.87 pence yesterday, the weakest since December 2011.
Sterling has weakened 3.4 percent this year, the second-worst performer after the yen among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 2.4 percent and the dollar gained 0.1 percent.
“There is a pessimistic view that the mess we’ve been in, the financial crisis and the aftermath of it means that in the future we should expect growth to be very substantially lower than the 2-2.5 per cent level,” the Independent quoted Miles as saying. “I’m not convinced by that and I think it is likely that the cruising speed of the economy may well get back to that long-run average.”
Gross domestic product shrank 0.3 percent last quarter, the Office for National Statistics said on Jan. 25. Economists surveyed by Bloomberg forecast a decline of 0.1 percent.
Mortgage approvals improved to 54,500 last month from 54,000 in November, according to the median estimate of 21 economists in a Bloomberg News survey before the data is released tomorrow.
Sterling fell to the weakest level in 13 months versus the euro yesterday 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.
Gains versus the euro may be tempered as the single currency will find support around its 200-week moving average of 85.31 pence, Royal Bank of Canada said today in a research note. Support is an area where buy orders may be clustered.
Benchmark 10-year yields fell two basis points, or 0.02 percentage point, to 2.08 percent. The 1.75 percent bond maturing in September 2022 rose 0.17, or 1.70 pounds per 1,000-pound face amount, to 97.11. Thirty-year yields declined one basis point to 3.33 percent.
The Debt Management Office said it sold the 3.25 percent bonds due in 2044 via banks at a yield of 3.4185 percent after receiving orders for 9.7 billion pounds. HSBC Holdings Plc, JPMorgan Chase & Co, Morgan Stanley and Royal Bank of Canada were hired to manage the sale.
Overseas investors bought 15 percent of the securities, the second-largest allocation to foreign buyers on record, the agency said.
Gilts handed investors a loss of 2.1 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds slid 2 percent and Treasuries fell 0.8 percent.