The pound strengthened from a two- week low against the dollar amid speculation the Bank of England will tomorrow refrain from extending stimulus measures that tend to devalue the currency.
Sterling rose versus most of its major counterparts as a report showed U.K. shop-price inflation accelerated last month. Central-bank policy makers will maintain their asset-purchase target at 375 billion pounds ($568 billion), according to economists surveyed by Bloomberg. Minutes of the last two meetings showed three members of the nine-member Monetary Policy Committee, including Governor Mervyn King, voted to boost so- called quantitative easing. Gilts advanced.
“We are focused on the Bank of England tomorrow but they are trapped a bit by inflation remaining stubbornly high,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “We’re seeing expectations that King can gain a consensus for more QE being tempered. There seem to be two relatively well entrenched camps at the moment.”
The pound climbed 0.2 percent to $1.5141 as of 4:10 p.m. London time after falling to $1.5076, the lowest level since March 20. The U.K. currency was little changed at 84.84 pence per euro.
FxPro’s Smith said he doesn’t expect an expansion in quantitative easing tomorrow.
U.K. retail prices rose 1.4 percent from a year earlier, compared with an increase of 1.1 percent in February, the British Retail Consortium said today. The impact of the pound’s 5 percent decline since the start of the year is beginning to show in the figures, the group said.
The Chartered Institute of Purchasing and Supply said its index of construction activity increased to 47.2 last month from 46.8 in February, still below the 50 level that divides expansion and contraction.
Benchmark 10-year gilt yields dropped two basis points, or 0.02 percentage point, to 1.76 percent. The price of the 1.75 percent bond due in September 2022 rose 0.18, or 1.80 pounds per 1,000-pound face amount, to 99.95.
The pound has declined 5.1 percent this year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 2.7 percent and the euro fell 0.3 percent.
Gilts returned 0.6 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 0.3 percent, while Treasuries fell 0.1 percent.
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