Pound Gains Most Since 2009 as BOE Refrains From Adding Stimulus

The pound rose the most since October 2009 against the dollar as the Bank of England refrained from adding to stimulus that debase the currency at Governor Mervyn King’s final meeting amid signs growth is accelerating.

The U.K. currency advanced versus all except two of its 16 major peers as a Halifax report showed house prices rose for a fourth month in May. Gilts fell as European Central Bank President Mario Draghi said the ECB kept further measures, including negative deposit rates, on the shelf at this month’s meeting. The pound is still the worst performer among Group of Seven countries since King became central-bank governor in July 2003, according to Bloomberg Correlation-Weighted Indexes.

“I probably will tweak my sterling forecasts just to make them a bit stronger by the end of the year on the back of the data that we’ve seen,” said Jane Foley, senior currency strategist at Rabobank International in London. “Everybody anticipated that it would be a fairly non-event meeting today” from the Bank of England.

The pound climbed 1.5 percent to $1.5642 at 5:29 p.m. London time after rising as much as 1.8 percent, the biggest intraday gain since Oct. 15, 2009. It rose to $1.5684, the highest since Feb. 13. The U.K. currency was little changed at 84.88 pence per euro after appreciating to 84.77 pence, the strongest since May 21.

The Bank of England kept its target for bond purchases at 375 billion pounds, a decision predicted by all except one of 43 estimates in a Bloomberg survey. The Monetary Policy Committee also held the U.K.’s main interest rate at 0.5 percent. King’s successor Mark Carney takes over on July 1.

‘Sterling Supported’

“This could keep sterling supported for the time being,” Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London, wrote in a note to clients before the decision.

U.K. home values rose 0.4 percent in May from the previous month to an average 166,898 pounds, the highest since August 2010, Halifax, the mortgage unit of Lloyds Banking Group Plc, said in a statement.

Sterling has gained 4.5 percent in the past three months, the best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, on fading speculation the central bank would undertake more stimulus. The dollar fell 0.1 percent and the euro strengthened 2.6 percent.

ECB Decision

The pound pared gains versus the euro after the ECB kept its main interest rate at 0.5 percent and Draghi said the euro-area economy will return to growth by year-end, reducing the need for fresh stimulus.

“Euro-area economic activity should stabilize and recover in the course of the year albeit at a subdued pace,” Draghi told reporters in Frankfurt after the ECB’s announcement.

The 10-year gilt yield rose two basis points, or 0.02 percentage point, to close at 2.02 percent. It reached 2.06 percent on June 3, the highest level since March 8. The 1.75 percent bond due in September 2022 fell 0.13, or 1.30 pounds per 1,000-pound face amount, to 97.695.

The U.K. currency has weakened 24 percent in the 10 years since King became BOE governor, the Bloomberg Correlation-Weighted Indexes show, as policy makers cut the benchmark interest rate to a record-low 0.5 percent from as high as 5.75 percent in 2007.

Gilts have posted the worst performance among G-7 nations over the past month, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The securities lost 2.4 percent since May 6, outperforming only South Africa among the 26 sovereign-debt markets tracked by the indexes.

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