Pound Rises for First Week in a Month on Bernanke; Gilts Advance

The pound posted its first weekly advance in a month versus the dollar after Federal Reserve Chairman Ben S. Bernanke said America’s economy still needed stimulus, weakening the U.S. currency.

Sterling strengthened from a three-year low against the greenback even after a government report showed Britain’s industrial output unexpectedly shrank in May. U.K. government bonds rose this week, with 10-year yields falling the most in four months, before the Bank of England publishes the minutes of its July meeting, the first led by new Governor Mark Carney.

“The pound’s rebound this week against the dollar was driven mostly by Mr. Bernanke’s comments, which led to a selloff in the dollar,” Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “That doesn’t change our view that the pound will resume its weakness. We think the Bank of England under Carney will be more aggressive with its accommodative policy than expected by the market.”

The pound strengthened 1.4 percent this week to $1.5103 at 5:13 p.m. in London yesterday after sliding to $1.4816 on July 9, the weakest level since June 2010. The U.K. currency depreciated 0.2 percent to 86.36 pence per euro.

Sterling will decline to $1.48 by year-end and be little changed at 85 pence per euro, Hardman said, citing Bank of Tokyo-Mitsubishi’s forecasts.

“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said on July 10 in response to a question following a speech in Cambridge, Massachusetts. The pound jumped 1 percent against the dollar that day and 1.1 percent the following day.

Manufacturing Contracts

U.K. manufacturing fell 0.8 percent in May from April, when it declined 0.2 percent, the Office for National Statistics said on July 9. The median forecast of 25 economists in a Bloomberg News survey was an increase of 0.4 percent increase.

The pound has declined 2 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar rose 6.4 percent and the euro gained 5 percent.

The U.K. recovery “remains weak” by historical standards and rising market interest rates pose a threat to the economy, the Bank of England said in a statement released after its July 3-4 policy meeting. The central bank will release the minutes of the gathering on July 17.

Ten-year gilts rose for the first week in a month, with the benchmark yield dropping 16 basis points to 2.33 percent, the biggest decline since the period ended March 1. The 1.75 percent security due in September 2022 rose 1.25, or 12.50 pounds per 1,000-pound face amount, to 95.26.

U.K. government securities handed investors a loss of 3 percent this year through July 11, according to Bloomberg World Bond Indexes. German bonds dropped 1.1 percent and Treasuries declined 2.7 percent, the indexes show.

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