By - Feb 21, 2011 9:17 PM GMT+0800
The pound fell from a three-week high against the dollar and gilts advanced as escalating political unrest in the Middle East crimped demand for all but the safest assets.
Sterling weakened versus a basket of nine developed-nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes as Libyan forces attacked anti-government protesters overnight in the capital, Tripoli, drawing condemnation from the U.S. and Europe. Ten-year gilt yields declined to the lowest since Feb. 2 as Brent crude oil topped $105 a barrel for the first time since September 2008 and gold climbed to an almost seven-week high.
“Risk sentiment has softened and that’s putting a cap on the pound,” said Chris Walker, a foreign-exchange strategist at UBS AG in London. “The market is in a generally concerned state, especially with oil prices where they are.”
The pound dropped 0.2 percent to $1.6221 at 1:14 p.m. in London after reaching $1.6263 at the end of last week, the highest level since Feb. 3. The British currency was little changed at 84.26 pence per euro.
Libyan leader Muammar Qaddafi’s son said on state television that the country was facing a civil war that would cripple the nation’s oil output. The unrest followed clashes between government forces and demonstrators in Bahrain, Yemen and Djibouti, uprisings sparked by protests that toppled the leaders of Egypt and Tunisia.
“Part of the pound’s slight weakness today is in response to the tensions in the Middle East and North Africa,” said Michael Derks, chief strategist at FxPro Financial in London. “There is renewed uncertainty in the region which is affecting the pound from a risk aversion point of view.”
Yields Drop
The yield on the 4.75 percent security due March 2020 declined six basis points to 3.75 percent. The bond rose 0.44, or 4.4 pounds per 1,000-pound ($1,622) face amount, to 107.61. Two-year yields fell three basis points to 1.50 percent.
The pound jumped 3.9 percent against the dollar this year and gilt yields climbed amid mounting speculation the Bank of England will be forced to raise interest rates to contain accelerating inflation. Minutes from the central bank’s Feb. 10 meeting, when it kept its benchmark rate unchanged at a record low 0.5 percent, will be released in two days.
“The outlook for the pound remains driven by interest-rate expectations,” said Walker at UBS. “The release of the minutes will be the main driver for the pound this week,” outweighing news from the Middle East, he said.
Rate Speculation
Chancellor of the Exchequer George Osborne said the Bank of England is right to support the U.K.’s economic recovery by looking beyond quicker inflation to maintain interest rates at a record low.
Money markets signal the Bank of England may boost its key rate by more than 75 basis points by year-end, according to the Sterling overnight interbank average, or Sonia, Tullett Prebon Plc data shows.
The implied yield on the December short-sterling futures contract fell two basis points to 1.73 percent, indicating traders reduced bets that borrowing costs in the U.K. will rise. The yield was at 1.25 percent on Dec. 31.
“There’s a reasonable prospect of at least one more MPC member shifting camps to join the hawks,” said FxPro’s Derks. “The pound will remain one of the better performing major currencies over the course of the year, mainly from an interest- rate differential perspective. It’s entirely plausible that we get a rate hike at one of the next two MPC meetings.”
Gilt Returns
Policy makers have been split three ways since October, with Adam Posen calling for an expansion of the bank’s bond- purchase plan and Andrew Sentance voting to raise the key rate 25 basis points to 0.75 percent. Sentance was joined by Martin Weale at the central bank’s Jan. 13 rate decision.
Gilts lost 2.5 percent this year, compared with a 1.8 percent drop for German bunds, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries fell 0.9 percent, the indexes show.
A report today showed average asking prices for homes in England and Wales rose 3.1 percent this month from January, according to Rightmove Plc. The average number of properties for sale per estate agent dropped to a 10-month low, propping up values, the operator of the U.K.’s biggest property website said. In London, prices rose 4.2 percent on the month.
To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
Posts
0 comments:
Post a Comment