Bloomberg News

Pound Weakens as Bank of England Starts Two-Day Policy Meeting

March 06, 2013

The pound fell for the first time in three days against the dollar as Bank of England policy makers started a two-day meeting to decide whether to add more stimulus to revive the struggling economy.

The U.K. currency weakened all except two of its 16 major counterparts as 11 of the 39 economists surveyed by Bloomberg News predict the central bank will tomorrow increase its asset- purchase target to at least 400 billion pounds ($603 billion) from the current 375 billion pounds. The remainder forecast so- called quantitative easing will be kept on hold. U.K. government bonds were little changed.

“The risk, if there is a surprise at all, is that there will be more asset purchases and that will weigh on sterling,” said Raghav Subbarao, a foreign-exchange strategist at Barclays Plc in London. “Our base case is that there won’t be any change in policy tomorrow.”

The pound dropped 0.5 percent to $1.5053 at 4:25 p.m. London time after falling to $1.4986 on March 1, the weakest level since July 2010. The U.K. currency declined 0.1 percent to 86.37 pence per euro.

Sterling has slumped 5.6 percent this year, the worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 2.6 percent and the euro rose 1.2 percent.

‘Stand Ready’

U.K. policy makers said they “stand ready” to increase quantitative easing to support the recovery, according to the minutes of last month’s monetary policy decision published on Feb. 20. In a wide-ranging discussion on the need for “targeted” measures, they said some may be beyond the scope of the central bank and fall under the province of other government departments.

The yield on the benchmark 10-year gilt traded at 1.96 percent. The 1.75 percent bond due in September 2022 was at 98.215.

U.K. house prices rose in February, according to Halifax, which said the market is improving and values may continue to increase. Prices climbed 0.5 percent from the previous month, the mortgage unit of Lloyds Banking Group Plc said in a statement in London.

While both Nationwide Building Society and Hometrack Ltd. also reported increases in house prices in February, Nationwide said the property recovery is “likely to be gradual.”

U.K. government bonds have lost 1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds dropped 0.5 percent and Treasuries fell 0.3 percent.

To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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