Wednesday, 18 June 2014

Pound About 0.2 Percent From Five-Year High Before BOE Minutes


The pound was about 0.2 percent from a five-year high versus the dollar before the Bank of England publishes minutes of its June 5 meeting that may signal policy makers are moving closer to raising interest rates.

The U.K. central bank’s key rate has been at a record-low 0.5 percent since March 2009, when it was battling to thaw credit markets and stimulate growth in an economy mired in its worst recession since World War II. BOE officials last increased borrowing costs in July 2007. Sterling climbed above $1.70 this week after Governor Mark Carney fueled speculation by saying in a June 12 speech that the first increase “could happen sooner than markets currently expect.”

“Carney’s Mansion House speech which happened last Thursday definitely gave the market a shock,” said Eimear Daly, the head of market analysis at London-based broker Monex Europe Ltd. “Maybe that was a slight pre-warning, a little hint that we might get something a lot more hawkish out of the minutes. The BOE could raise rates even as soon as the end of this year. We are going to go above that 1.70 level and stay there in sterling-dollar.”

The pound was little changed at $1.6982 as of 8:19 a.m. London time after rising to $1.7011 on June 16, the highest since Aug. 6, 2009. Sterling traded at 79.82 pence per euro after appreciating to 79.59 pence on June 16, the strongest level since Oct. 1, 2012.

Rate Outlook

Forward contracts based on the sterling overnight interbank average, or Sonia, show investors are betting the benchmark rate will increase 25 basis points by January, versus May before Carney’s speech last week.

The pound strengthened 9.5 percent in the past year, the best performer after New Zealand’s dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 1.3 percent, while the dollar slipped 0.1 percent.

U.K. government bonds were little changed, with the benchmark 10-year gilt yield at 2.78 percent. The price of the 2.25 percent bond due in September 2023 was 95.745.

Gilts returned 2.8 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries earned 2.6 percent and German securities gained 3.9 percent.



By Lucy Meakin Jun 18, 2014 8:22 AM GMT

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