The pound rose for a third week against the euro amid speculation the Bank of England will pause its asset-purchase program next week, underpinning the currency’s attraction as a haven from Europe’s debt crisis.
Sterling climbed to a 22-month high versus the shared currency before France and Greece hold elections tomorrow. The pound reached the highest since August against the dollar after the Swiss National Bank said it almost doubled its holdings of the U.K. currency. The BOE meets on May 9-10 to debate whether to announce additional bond purchases, or quantitative easing, after the current 325 billion pound ($525 billion) program ended this week. Gilts rose.
“The pound is a favorable alternative to the euro,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London. “With QE paused in the U.K. for the time being, sterling has room to rally, particularly against the euro, with the elections likely changing the political landscape.”
The pound appreciated 0.5 percent this week to 81.10 pence per euro at 4:24 p.m. London time yesterday after reaching 81.03 pence May 3, the strongest since June 2010. Sterling fell 0.7 percent this week to $1.6151 after rising to $1.6302 on April 30, the highest level since Aug. 31.
The pound may advance to 78 pence versus the euro by year- end, Stannard said.
French voters will chose between President Nicolas Sarkozy and Socialist Francois Hollande, while Greeks are set to decide on a new parliament. Euro-area data yesterday showed services and manufacturing shrank last month by more than economists forecast, increasing concern the debt crisis will worsen.
The Bank of England will keep its key rate at a record low 0.5 percent next week, according to all 61 economists in a Bloomberg survey. Policy makers will refrain from announcing additional asset purchases, according to 43 of the 51 economists in a separate survey. The other eight forecast an increase.
“The better performance of the pound was related to the perception that the Monetary Policy Committee has become less dovish,” Jane Foley, a senior currency strategist at Rabobank International in London, wrote yesterday in a note to clients. “We have also been arguing that the accommodative policies of the Federal Reserve, Bank of Japan and the SNB has most likely been redirecting safe-haven flows in sterling’s direction.”
The Swiss central bank boosted holdings of the U.K. currency to 14.5 billion pounds last quarter from 7.5 billion pounds in the previous three months, according to its foreign- currency holdings report released April 30.
Sterling has appreciated 3.7 percent in the past three months, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1.2 percent, and the euro climbed 0.8 percent.
The yield on the benchmark 10-year gilt fell 12 basis points, or 0.12 percentage point, this week to 2 percent. The 4 percent bond due in March 2022 gained 1.14, or 11.40 pounds per 1,000-pound face amount, to 117.73.
The Debt Management Office plans to auction as much as 2 billion pounds of 30-year gilts on May 9.
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