Pound Falls to 5-Week Low as Putin Supports Crimea Secession BidEshe Nelson
The pound fell to a five-week low versus the dollar as President Vladimir Putin told lawmakers he supported Crimea’s request to join Russia and Ukraine said it won’t recognize such a move.
Sterling slid to the weakest in three months versus the euro before unemployment data and Bank of England minutes are published tomorrow. Chancellor of the Exchequer George Osborne announced today the appointment of Ben Broadbent, an external member of the Monetary Policy Committee, as the next deputy governor for monetary policy, replacing Charlie Bean. U.K. government bonds erased an advance.
“The pound is experiencing a modest correction to the downside,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The market is watching headlines from Ukraine and Russia and that’s having an impact on risk sentiment in the near term. During bouts of risk aversion the pound can be vulnerable to the downside.”
The pound fell 0.4 percent to $1.6568 at 4:22 p.m. London time after sliding to $1.6546, the lowest since Feb. 12. The U.K. currency depreciated 0.3 percent to 83.96 pence per euro after reaching 84 pence, the weakest since Dec. 25.
Putin told lawmakers in Moscow today that Russia wishes no harm to Ukraine, saying a weekend referendum in Crimea to secede from the nation was “open, fair,” and indicated he didn’t have ambitions in other regions of its western neighbor. Interfax reported that Ukraine won’t recognize the region’s accession to the Russian Federation.
Western leaders condemned Putin’s push to annex the Black Sea peninsula and promised further sanctions after yesterday putting travel and financial restrictions on Russian and Ukrainian officials.
The pound has lost 0.9 percent in the past week, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as the Ukraine crisis deepened. The euro weakened 0.2 percent and the dollar depreciated 0.6 percent.
Osborne also announced the appointment of International Monetary Fund official Nemat Shafik as deputy governor for markets and banking, a new position at the central bank. Shafik will take Paul Fisher’s seat on the MPC.
“The voting record of both Bean and Fisher signals a clear dovish lean,” Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. in London, wrote in a note. “One could thus argue that the changes could result in a less dovish MPC mix from here, which could make it more sensitive to positive economic and inflation surprises from here.”
Despite recent losses, the pound has outperformed all its peers in the past year, according to the Bloomberg indexes, as a strengthening economy boosted bets the Bank of England would increase interest rates from a record-low 0.5 percent sooner than it anticipated.
Citigroup forecasts the first rate increase will take place in December.
“The latest changes at the MPC may increase the chances of that happening,” Marinov wrote. “That may prove sterling-positive before long.”
The yield on the U.K. 10-year gilt was at 2.68 percent after dropping to 2.66 percent. It slid to 2.64 percent on March 3, the lowest level since Nov. 5. The price of the 2.25 percent bond due in September 2023 was at 96.445.
Gilts returned 2.8 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries gained 1.8 percent and German securities gained 2.5 percent.