The pound weakened for a third day against the dollar as some economists forecast the Bank of England will boost its asset-purchase program at a policy meeting today.
Sterling weakened against most of its 16 major peers as eight of 51 economists surveyed by Bloomberg predict policy makers will increase quantitative easing by at least 25 billion pounds ($40 billion). Gilts were little changed after a report showed U.K. manufacturing production rose more than forecast in March.
“The pound is a touch weaker as there’s a moderate possibility that the BOE may spring a surprise,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “It makes sense to be moderately short on the pound into next week on the expectation that the BOE may be a little more circumspect about growth and the outlook for QE in the medium term.”
The pound dropped 0.1 percent to $1.6113 at 11:29 a.m. London time after falling to $1.6067 yesterday, the lowest level since April 20. Sterling declined 0.2 percent to 80.30 pence per euro. It earlier reached 80.03 pence, the strongest level since November 2008.
“Euro-sterling down near 80 pence provides a psychological barrier,” Stretch said. “Positions look pretty crowded and look vulnerable to a bit of a correction.”
The U.K. currency has appreciated 4.6 percent in the past three months, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 2 percent and the euro fell 0.2 percent.
U.K. factory output increased 0.9 percent in March after falling a revised 1.1 percent the previous month, the Office for National Statistics said today.
The 10-year gilt yielded 1.92 percent after dropping to a record 1.881 percent yesterday. The 4 percent bond due in March 2022 traded at 118.59.
Demand for the relative safety of U.K. government debt has pushed the yield difference, or spread, between two- and 10-year gilt rates to the lowest in more than three years.
The spread was at 150 basis points, or 1.5 percentage points, the least since Jan. 7, 2009, according to data compiled by Bloomberg.
The spread may encounter resistance at the January 2009 low at 131 basis points, and may find support at the 100-day moving average at 171 basis points, the data show.
Resistance refers to an area on a yield chart where analysts expect orders to sell a security to be grouped. Support is an area where they anticipate buy orders may be clustered.
Gilts have returned 0.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries gained 0.7 percent and German bunds returned 2.2 percent, the indexes show.
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