Pound Gains as Scots Concern Eases With Economy Poised to GrowLukanyo Mnyanda
The pound strengthened and a measure of implied price swings dropped as concern that Scotland will vote for independence next week subsided, allowing investors to focus on the strength of the U.K. economy.
Sterling appreciated versus most of its 16 major peers after a Survation poll yesterday signaled a surge in support for Scottish nationalists had faltered. Credit Agricole Corporate & Investment Bank analysts urged traders to ignore the referendum and pay attention instead to Britain’s growth outlook as it raised its forecast for the currency.
“The recovery is going on regardless of Scotland and the markets will get over it,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. Sterling also “regained some strength on the latest poll. There may have been people who sold on previous polls.”
The pound climbed less than 0.1 percent to $1.6224 at 4:55 p.m. London time after falling to $1.6052 yesterday, the lowest since Nov. 15. Implied volatility on the currency pair, a measure of future price swings used to price derivatives, dropped to 9.3275 percent after surging to 11.3 percent yesterday, the highest since 2011.
The pound will rise to $1.68 by year-end, Credit Agricole’s London-based strategists Adam Myers and Manuel Oliveri wrote in a client note dated yesterday, up from a previous estimate of $1.65.
Until last week, investors had largely been ignoring the referendum as surveys showed Scotland was unlikely to leave the U.K. That changed after a YouGov Plc poll for the Sunday Times showed the nationalists in the lead for the first time this year. Now, tension is easing again following yesterday’s Survation poll for the Daily Record newspaper that put the pro-U.K. lead at six points.
An opinion poll commissioned by the Times newspaper is due to be published tonight, and another for the Guardian is due tomorrow.
While the pound has declined 0.9 percent in the past month, it is still the best performer in the past year among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes, as signs of a strengthening economy propelled it to a 6.4 percent advance. The next biggest increase is 4.9 percent by the New Zealand dollar.
A report tomorrow will show construction output climbed in July for a second month, based on a Bloomberg survey of analysts. Data in the past week showed house prices, manufacturing and industrial production rose.
Sterling was also supported this week after Bank of England Governor Mark Carney said two days ago that officials will probably increase the benchmark interest rate from a record low in the spring as wage growth accelerates and the recovery gains momentum.
“It is my judgment that, consistent with the guidance and our forecast, as the economy has continued to normalize, we have moved closer to the point at which Bank Rate will need to start to rise in order to achieve the inflation target,” Carney reiterated before lawmakers in London yesterday.
U.K. government bonds were little changed today after the Debt Management Office sold 30-year gilts at the lowest yield at an auction since April 2013.
Benchmark 10-year yields were at 2.50 percent. The price of the 2.75 percent gilt due in September 2024 was 102.21 percent of face value.
The U.K. auctioned 2 billion pounds of gilts maturing in January 2045 at an average yield of 3.17 percent. The rate on the 30-year gilt due in January 2044 fell two basis points, or 0.02 percentage point, to 3.17 percent.
Gilts returned 6.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries earned 3.5 percent and German securities gained 6.6 percent.