The pound fell for a sixth week against the dollar, its longest run in four years, as investors pushed back their expectations for the timing of the Bank of England’s first interest-rate increase since 2007.
Sterling depreciated for a third week versus the euro after BOE Governor Mark Carney said that policy makers will pay more attention to Britain’s ailing wage growth when deciding on interest rates. U.K. government bonds advanced for a sixth week after a report showed wages fell for the first time since 2009.
“Everybody was surprised by the dovish signals from the BOE,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “That’s why we had the big move down in sterling this week. One thing they wanted to do was push pack the very aggressive rate-hike expectations and Carney managed that excellently.”
Sterling dropped 0.5 percent this week to $1.6687 as of 5:17 p.m. London time yesterday, after sliding to $1.6658 on Aug. 14, the least since April 8. The currency’s six-week decline is the longest run of losses since June 2010. The pound weakened 0.4 percent to 80.23 pence per euro, after touching 80.36 pence on Aug. 14, its weakest level since June 12.
Carney said policy makers are focusing on wages and that growth “faces some challenges,” in remarks after central bank officials published their quarterly Inflation Report in London on Aug. 13. BOE policy makers said they now see annual growth in wages in the fourth quarter at about 1.25 percent, down from 2.5 percent estimated in May. Average weekly earnings fell 0.2 percent in the three months through June, even as unemployment dropped to 6.4 percent, the Office for National Statistics reported the same day.
Forward contracts based on the sterling overnight interbank average, or Sonia, show investors have pushed back bets on a 25 basis-point increase in borrowing costs to May, from February before the central bank released its Inflation Report. Monetary Policy Committee member David Miles said in an Aug. 14 radio interview that the Bank of England “can afford to keep interest rates at this unusually low level for a bit longer yet.”
The 10-year gilt yield fell 13 basis points, or 0.13 percentage point, to 2.33 percent after touching 2.32 percent yesterday, the lowest since August 2013. The six-week run of declines in yield is the longest since June 2012. The 2.25 percent bond due in September 2023 rose 1.08, or 10.80 pounds per 1,000-pound face amount, to 99.38.
Gilts returned 6.1 percent this year through Aug. 14, Bloomberg World Bond Indexes show. That compares with a gain of 6.5 percent for German securities and 4.1 percent for Treasuries.
To contact the reporters on this story: Alexa Liautaud in London at firstname.lastname@example.org; David Goodman in London at email@example.com
To contact the editors responsible for this story: Paul Dobson at firstname.lastname@example.org Todd White, Keith Jenkins