Pound Gains as BOE Minutes Reveal Concern on Stimulus Impact

The pound rose for the first time in three days against the dollar after minutes of the Bank of England’s most recent policy meeting showed a majority of policy makers said more bond purchases may erode their credibility.

Sterling pared its drop versus the euro as the minutes revealed most of the nine-member Monetary Policy Committee said more quantitative easing “might also lead to an unwarranted depreciation of sterling.” Gilts fell before Chancellor of the Exchequer George Osborne unveils his budget for the fiscal year ending March 2014. A government report showed jobless claims fell less than economists predicted last month.

“The comments were more of a surprise than the actual vote,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “It’s the first time we’ve seen verbal intervention in support of sterling in the past few years. This could be a nail in the coffin for further quantitative easing.”

The pound gained 0.1 percent to $1.5119 at 11:53 a.m. London time after weakening as much as 0.5 percent. Sterling was little changed at 85.41 pence per euro, reversing a 0.6 percent decline to 85.81 pence. It climbed to 85.05 pence yesterday, the strongest level since Feb. 11.

Bank of England policy makers voted 6-3 to keep the target for asset purchases at 375 billion pounds, according to minutes of the March 6-7 meeting published today. King, David Miles and Paul Fisher voted for a 25 billion-pound increase.

The same three had similarly voted to boost the target at last month’s gathering, according to the minutes of that meeting released on Feb. 20. Officials said then they “stand ready” to increase the program.

Osborne Budget

Sterling has weakened 7 percent against the greenback this year amid speculation the central bank will boost asset purchases to revive the economy and counter the impact of Osborne’s austerity measures. Policy makers last increased the target in July, boosting it by 50 billion pounds.

Osborne will unveil his budget in an address to lawmakers amid speculation he will loosen the central bank’s mandate on inflation targets.

After his speech, the Debt Management Office will announce funding needs for the next fiscal year. The median forecast from 19 of 21 primary dealers that trade directly with the debt agency was 161 billion pounds in a Bloomberg News survey, down from 164.2 billion pounds planned for the current fiscal year.

Jobless Claims

“It is actually very likely that they change a bit the remit,” Guillermo Felices, head of European asset allocation at Barclays, and a former Bank of England economist, said on Bloomberg Television’s “On the Move” with Francine Lacqua. “That will help the MPC in terms of paving the way for more QE, but we don’t expect anything radical.”

Ten-year gilt yields rose seven basis points, or 0.07 percentage point, to 1.90 percent after falling 14 basis points in the previous four days. The 1.75 percent security due in September 2022 gained 0.56, or 5.60 pounds per 1,000-pound face amount, to 99.75.

Jobless claims fell by 1,500 following a revised 10,000 decline in January, the Office for National Statistics in London said today. The median forecast of 27 economists in a Bloomberg survey was for a drop of 5,000.

U.K. government bonds returned 1.2 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds rose 0.7 percent and Treasuries lost 0.1 percent.

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