Bloomberg News

Pound Weakens as Fisher Says BOE Hasn’t Ruled Out More Stimulus

June 21, 2011

June 21 (Bloomberg) -- The pound weakened versus the euro after Bank of England Markets Director Paul Fisher said officials haven’t ruled out adding to their bond-purchase program if needed to support the economy.

Sterling depreciated against all but two of its 16 major counterparts tracked by Bloomberg, losing most against the Swedish krona. More stimulus is “still very much on the table as one of our potential policy actions and it hasn’t been ruled out,” Fisher said at a conference in London this morning. Data today showed Britain’s budget deficit narrowed less than forecast to 17.4 billion pounds ($28.2 billion) in May.

“It should be a sterling sell,” said Neil Jones, head of European hedge-fund sales at Mizuho Financial Group Inc. “The market had factored out further chances of quantitative easing, especially given some of the inflation rhetoric over the past few months from the more hawkish members of the Monetary Policy Committee. The BOE is shifting away from hawkishness to dovishness as a general theme.”

The pound depreciated 0.5 percent to 88.72 pence per euro as of 4:35 p.m. in London, after sliding to 88.77 pence, the weakest intraday level since June 10. Sterling was 0.2 percent higher at $1.6229 after touching $1.6255, its strongest since June 15. The British currency was little changed at 130.02 yen.

The U.K. currency may slide below $1.60 and weaken through 90 pence per euro, Jones said.

Gilts Auction

The central bank publishes the minutes of its most recent policy meeting tomorrow. It held rates at a record low 0.5 percent for a 28th month to support the recovery, even as inflation held at the fastest pace since October 2008 last month.

Policy makers voted 6-3 to keep interest rates on hold in May. Andrew Sentance maintained his call for a half-point increase in the key rate, while Chief Economist Spencer Dale and Martin Weale continued a push for a quarter-point increase. Governor Mervyn King and the other five members of the Monetary Policy Committee voted for no change. Adam Posen kept up a call for more bond purchases.

“Investors will be looking for indications from the June BOE minutes that the prospect for early hikes has weakened further now that Andrew Sentance is no longer a member of the MPC,” wrote Valentin Marinov, a London-based currency strategist at Citigroup Inc. in a research report today.

Gilts were little changed, with the 10-year yield at 3.22 percent. The U.K. auctioned 4.75 billion pounds of notes maturing in January 2016 at an average yield of 1.963 percent. Investors bid for 1.56 times the securities offered.

U.K. government bonds have returned 2.7 percent this year, compared with a 3.3 percent gain on Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

The U.K. budget shortfall shrank from 18.5 billion pounds a year earlier, according to the Office for National Statistics. It was still wider than the 17 billion-pound median estimate of 12 economists in a Bloomberg survey. Government revenue rose 8.2 percent and spending grew 2.2 percent.

--Editors: Matthew Brown, Keith Campbell

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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