Pound Rises to 2 1/2-Year High on Carney Vow to Hold Down Rates
By Lucy Meakin
The pound strengthened to a 2 1/2-year high versus the dollar as jobless data that beat analyst expectations prompted the Bank of England governor to pledged keep down interest rates to support the recovery.
Sterling posted its biggest weekly jump against the greenback in a month even after Mark Carney said there is no “immediate need” for the BOE’s Monetary Policy Committee to increase borrowing costs and the currency’s strength may harm exports. A report on Jan. 22 showed the jobless rate fell to 7.1 percent in the three months through November, approaching the 7 percent threshold announced by Carney in August as the trigger for reviewing policy. Gilts advanced for a fourth week.
“It is no surprise to see sterling showing such strength,” said Lee McDarby, executive director of U.K. corporate foreign-exchange sales at Nomura International Plc in London. “This week’s move into the $1.66’s was broadly expected given recent good data and may constitute the top of the tree, especially with Carney damping the flames of a sterling rally after Wednesday’s unemployment figures. The MPC does not want the pound to strengthen too quick too soon.”
The U.K. currency gained 0.4 percent in the week to $1.6491 as of 5:07 p.m. London time yesterday, when it touched $1.6668, the highest level since May 2011. The pound weakened 0.6 percent to 82.93 pence per euro after appreciating to 81.68 pence on Jan. 22, the strongest since Jan. 10, 2013.
Sterling has been the best performer over the past six months among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes as investors bet the strength of the nation’s recovery will prompt the Bank of England to raise its key rate from a record-low 0.5 percent. The pound has risen 8 percent, the euro gained 3.4 percent and the U.S. dollar fell 0.6 percent.
“Even though unemployment is falling faster than expected, the recovery has some way to run before it would be appropriate to consider moving away from the emergency setting of monetary policy,” Carney said in a speech in Davos, Switzerland, yesterday. Borrowing costs in the medium term may not return to levels seen prior to the financial crisis in 2008, he said.
The U.K. economy expanded 0.7 percent in the fourth quarter, after growing 0.8 percent in the previous three months, according to the median estimate in a Bloomberg News survey of economists before the data on Jan. 28. It will grow 2.6 percent this year, compared with 1 percent in the euro area and 2.8 percent in the U.S., according to separate estimates compiled by Bloomberg.
The 10-year gilt yield fell six basis points, or 0.06 percentage point, to 2.77 percent and touched 2.73 percent yesterday, the lowest since Nov. 27. The 2.25 percent security due in September 2023 climbed 0.485, or 4.85 pounds per 1,000-pound face amount, to 95.62.
Gilts returned 1.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries gained 1.2 percent and German securities earned 1.1 percent.
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