The pound declined for a fourth week against the dollar, the longest run of losses since September, amid speculation the Bank of England will restart its program of asset purchases to spur growth.
Gilts advanced for a fifth week, with two-, five- and 10- year yields dropping to records, as government reports showed gross domestic product shrank more than initially estimated and retail sales declined. U.K. bonds rallied as minutes of the Bank of England’s May 10 meeting showed the Monetary Policy Committee’s decision to halt its 325 billion-pound ($510 billion) bond-purchase program was “finely balanced.”
“I have flipped from pound bull to pound bear,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “Quantitative easing back on the table and the June MPC meeting may prove seismic.”
The pound depreciated 1.1 percent this week to $1.5648 at 4:51 p.m. London time yesterday, after sliding to $1.5631, the lowest level since March 13. Sterling advanced 1 percent over the five days to 79.99 pence per euro.
Minutes of the Bank of England’s meeting released on May 23 showed the central bank thought there was a case for it to resume stimulus, and it could do so if needed. Still, only one of the nine-member MPC voted to add to quantitative easing at the gathering.
“An exceptionally expansionary monetary policy” is appropriate to address risks of permanent damage to the economy and higher unemployment, MPC member David Miles said in a May 24 speech in London.
The 10-year gilt yield fell seven basis points, or 0.07 percentage point, this week to 1.75 percent. The 4 percent bond due March 2022 gained 0.67, or 6.70 pounds per 1,000-pound face amount, to 120.10. The yield dropped to 1.738 percent on May 24, the lowest since Bloomberg began compiling data on the securities in 1989.
The five-year yield fell to a record 0.707 percent yesterday, and the two-year yield declined to an all-time low of 0.21 percent.
GDP shrank 0.3 percent in the first quarter, more than the 0.2 percent drop estimated last month, the Office for National Statistics said May 24. Retail sales including auto fuel declined 2.3 percent from March, the office reported May 23.
Sterling dropped 0.1 percent this week, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar gained 1.1 percent, and the euro weakened 0.9 percent.
Gilts have returned 3 percent in May, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 2 percent, and U.S. Treasuries rose 1.3 percent.
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