Pound Holds Advance Against Euro Before BOE’s Inflation Report

The pound held its biggest advance in two weeks versus the euro before the Bank of England releases its quarterly Inflation Report today and provides an update on its interest-rate guidance policy.

Sterling was little changed versus the dollar after rising to a one-week high yesterday. U.K. government bonds fell. Commerzbank AG said the Bank of England may reduce the unemployment threshold at which it may consider raising interest rates, while some investors expect officials to indicate that increases in borrowing costs will come sooner than later.

“We might see some temporary pound weakness mainly as a result of people coming out and saying they are trying to talk down rates,” Peter Kinsella, a senior currency strategist at Commerzbank in London, said in a telephone interview. “They are going to be rather unsuccessful.”

The pound was little changed at 82.85 pence per euro at 9:14 a.m. London time after appreciating 0.4 percent yesterday, the biggest gain since Jan. 27. The U.K. currency was at $1.6462 after climbing to $1.6487 yesterday, the strongest level since Jan. 31.

Central bank officials began working on revised forward guidance after the quickest economic growth since 2007 sent unemployment tumbling. The jobless rate dropped to 7.1 percent in the three months through November, just above the 7 percent level they identified in August as the point for considering a rate increase. Annual inflation slowed to the central bank’s 2 percent target in December, a report showed on Jan. 14.

Pound Strength

Sterling has strengthened 9.2 percent in the past 12 months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 5 percent and the dollar gained 3.4 percent.

The benchmark 10-year gilt yield rose two basis points, or 0.02 percentage point, to 2.76 percent, having risen from 2.64 percent on Feb. 5, the least since Nov. 5. The price of the 2.25 percent security due September 2023 fell 0.13, or 1.30 pounds per 1,000-pound face amount, to 95.755.

Gilts returned 1.9 percent this year through yesterday, the same as German securities, according to Bloomberg World Bond Indexes. Treasuries gained 1.5 percent.

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