By - Feb 11, 2011 7:54 PM GMT+0800
The pound weakened against the dollar on concern this year’s gains were overdone after the Bank of England held interest rates steady yesterday, dimming speculation about increases later this year.
Sterling extended its declines after unrest in Egypt sent the greenback higher against most other currencies as investors sought the safest assets. The U.K. central bank yesterday kept its benchmark interest rate unchanged at 0.5 percent. Gilts snapped a run of nine straight declines today, even as data showed producer-price inflation accelerated.
“The argument for a much stronger pound is not a good one based on current rates policy,” said Steve Barrow, the London- based head of research for Group-of-10 currencies at Standard Bank Plc. “At the moment the economy is still sufficiently vulnerable for inflation to come down. On that basis, one would tend to favor a scenario where rates only go up towards the back end of the year.”
The pound lost 0.7 percent to $1.5991 at 11:38 a.m. in London. Sterling has declined 0.8 percent this week, though it has still advanced 2.3 percent this year. Britain’s currency depreciated 0.2 percent to 84.65 pence per euro.
U.K. two-year notes rose for the first day in three, with the yield on the 4.5 percent security due March 2013 dropping two basis points to 1.53 percent. The note fell 0.02, or 20 pence per 1,000 pound ($1,612) face amount, to 106.01. Ten-year yields declined four basis points to 3.84 percent.
The cost of goods at factory gates jumped 1 percent from December, when it rose 0.4 percent, the Office for National Statistics said today in London. That’s the most since April and exceeded the 0.5 percent median forecast of 14 economists in a Bloomberg News survey.
Governor Mervyn King has dismissed inflation risks as temporary, saying government spending cuts and slower-than- estimated economic growth will curb price pressures.
Short-sterling futures rose, lowering the implied yield on the contract expiring in December by three basis points to 1.71 percent. A lower yield indicates investors are reducing bets that policy makers will increase borrowing costs.
The U.K. 10-year breakeven rate, an indication of investors’ inflation expectations over the life of the securities, derived from the yield gap between conventional and index-linked bonds, fell two basis points to 3.25 percent.
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
Sterling extended its declines after unrest in Egypt sent the greenback higher against most other currencies as investors sought the safest assets. The U.K. central bank yesterday kept its benchmark interest rate unchanged at 0.5 percent. Gilts snapped a run of nine straight declines today, even as data showed producer-price inflation accelerated.
“The argument for a much stronger pound is not a good one based on current rates policy,” said Steve Barrow, the London- based head of research for Group-of-10 currencies at Standard Bank Plc. “At the moment the economy is still sufficiently vulnerable for inflation to come down. On that basis, one would tend to favor a scenario where rates only go up towards the back end of the year.”
The pound lost 0.7 percent to $1.5991 at 11:38 a.m. in London. Sterling has declined 0.8 percent this week, though it has still advanced 2.3 percent this year. Britain’s currency depreciated 0.2 percent to 84.65 pence per euro.
U.K. two-year notes rose for the first day in three, with the yield on the 4.5 percent security due March 2013 dropping two basis points to 1.53 percent. The note fell 0.02, or 20 pence per 1,000 pound ($1,612) face amount, to 106.01. Ten-year yields declined four basis points to 3.84 percent.
The cost of goods at factory gates jumped 1 percent from December, when it rose 0.4 percent, the Office for National Statistics said today in London. That’s the most since April and exceeded the 0.5 percent median forecast of 14 economists in a Bloomberg News survey.
Inflation Outlook
The Bank of England has faced mounting pressure to raise borrowing costs for the first time since July 2007 to help curb inflation, which has exceeded its target for more than a year. Inflation accelerated to 3.7 percent in December, equalling an April reading that was the highest since November 2008.Governor Mervyn King has dismissed inflation risks as temporary, saying government spending cuts and slower-than- estimated economic growth will curb price pressures.
Short-sterling futures rose, lowering the implied yield on the contract expiring in December by three basis points to 1.71 percent. A lower yield indicates investors are reducing bets that policy makers will increase borrowing costs.
The U.K. 10-year breakeven rate, an indication of investors’ inflation expectations over the life of the securities, derived from the yield gap between conventional and index-linked bonds, fell two basis points to 3.25 percent.
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
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