Pound Rises Second Day Versus Dollar After Bernanke; Gilts Rise

The pound strengthened for a second day against the dollar after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy still needed stimulus that tends to devalue a currency.

Sterling climbed from a four-month low versus the euro before the Bank of England publishes the minutes of its most recent meeting next week that will reveal how policy makers voted at new Governor Mark Carney’s first meeting. U.K. government bonds rose for a fourth day as the U.K. Debt Management Office sold 2.5 billion pounds ($3.78 billion) of 30-year gilts.

“The pound’s strength is driven mostly by dollar weakness following Bernanke’s comments,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “The message he tried to get across is that interest rates are going to remain low for some time. I would not rule out further sterling gains in the very near term.”

The pound advanced 0.8 percent to $1.5128 at 4:35 p.m. London time after declining to $1.4814 on July 9, the lowest level since June 2010. The U.K. currency strengthened 0.3 percent to 86.22 pence per euro after sliding to 86.94, the weakest since March 13.

Bernanke called yesterday for maintaining stimulus in the U.S. even as the minutes of the Fed’s June 18-19 meeting showed policy makers debating whether to stop bond buying this year.

“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said yesterday in response to a question after a speech in Cambridge, Massachusetts.

The Bank of England’s Monetary Policy Committee kept its asset-purchase target at 375 billion pounds on July 4. the minutes of the meeting will be released on July 17.

Net Wagers

Futures traders increased bets the pound will weaken against the dollar, according to data from the Washington-based Commodity Futures Trading Commission.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain totaled 31,324 contracts on July 2, compared with so-called net shorts of 19,429 a week earlier. The difference was as much as 77,738 on June 7.

The premium for three-month options granting the right to sell the pound relative to those giving the right to buy climbed to 1.64 percentage points on July 5, the highest since July 2012 and up from 0.475 in January, according to risk-reversal rates compiled by Bloomberg. The premium was at 1.28 percent today.

Risk Reversals

“I’d recommend to play the risk-reversals becoming more negative” for the pound, said Olivier Korber, a currency-derivatives strategist at Societe Generale SA in Paris. “Eventually, the BOE-Fed divergence will hit the pound even more.”

The pound has weakened 1.9 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar strengthened 6.3 percent and the euro gained 5 percent.

Gilts advanced as Bernanke’s comments added to speculation other central banks around the world will increase bond purchases to put downward pressure on borrowing costs.

The benchmark 10-year gilt yield fell three basis points, or 0.03 percentage point, to 2.39 percent. The 1.75 percent bond maturing in September 2022 rose 0.23, or 2.30 pounds per 1,000-pound face amount, to 94.80.

The Debt Management Office sold bonds due in July 2044 at an average yield of 3.553 percent, compared with 3.293 percent at the previous auction of 30-year securities on May 16.

The yield on the existing gilt maturing in January 2044 declined three basis points to 3.56 percent.

Gilts handed investors a loss of 3.3 percent this year through yesterday, Bloomberg World Bond Indexes show. German bonds declined 1.3 percent and Treasuries fell 3.6 percent.

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