Pound Falls to 7-Week Low Versus Euro as BOE Rejects Rate Rise

The pound fell to the lowest level in seven weeks against the euro as the Bank of England said policy makers were unanimous in rejecting higher interest rates, damping demand for Britain’s currency.

Sterling weakened versus 10 of its 16 major peers. The nine-member Monetary Policy Committee voted 9-0 to keep their quantitative-easing target at 375 billion pounds ($606 billion), according to the minutes of the Oct. 8-9 meeting published in London today. All members also agreed to hold the benchmark interest rate at a record-low 0.5 percent. Governor Mark Carney is due to speak in London tomorrow. Gilts advanced, with 10-year yields falling to an eight-week low.

“The Bank of England wants to head off the market bringing forward the expected start date of tightening,” said Paul Robson, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “There isn’t a huge amount of sterling news. People may be worried about what Mark Carney might say tomorrow.”

The pound depreciated 0.4 percent to 85.23 pence per euro at 4:38 p.m. London time after reaching 85.32 pence, the weakest since Sept. 2. Sterling dropped 0.4 percent to $1.6166 after climbing to $1.6257, the highest since Oct. 1.

Carney introduced forward guidance on the future path of interest rates in August, saying policy makers won’t consider raising borrowing costs until unemployment declines to 7 percent, something officials don’t anticipate until 2016.

BOE Minutes

“Market rates had fallen back over the month and output appeared to be expanding at least as fast as expected” in August, the Bank of England said in the minutes. “All members therefore agreed that there was currently little case for increasing the degree of monetary stimulus further.”

The central bank’s official interest rate will remain at a record low “for several more years,” according to Capital Economics Ltd.

“A continued period of inaction by the MPC looks in prospect,” London-based U.K. economist Martin Beck wrote in an e-mailed report. The bank rate “could remain on hold for at least three more years,” he said.

The pound has strengthened 4.5 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 4.4 percent, while the dollar fell 2.1 percent.

The 10-year gilt yield dropped four basis points, or 0.04 percentage point, to 2.60 percent after reaching 2.59 percent, the lowest since Aug. 27. The 2.25 percent bond maturing in September 2023 rose 0.365, or 3.65 pounds per 1,000-pound face amount, to 97.01.

Gilts lost 2.4 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries fell 1.8 percent and German securities slid 1.6 percent.

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