Pound Slides to Nine-Month Low Versus Dollar; Gilts Decline
http://www.fxfxfx.com 2010-02-20 23:26:05Sterling dropped to the lowest level against the dollar in nine months and headed for a weekly loss after the Federal Reserve unexpectedly raised the rate charged to banks for direct loans yesterday. The Bank of England last week cut its forecast for U.K. economic growth and predicted inflation will undershoot its target over the next two years. British retail sales dropped more than twice as much as economists forecast in January, data showed today.
“Risks have grown that the Bank of England will be left behind as other G-10 central banks begin the process of policy normalization,” Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut, wrote in a note yesterday. “Medium-term downside risks for sterling have increased.”
The U.K. currency dropped against all but one of its 16 most-traded peers, depreciating 0.6 percent to $1.5437 as of 4:15 p.m. in London after falling to $1.5357, the lowest level since May 19. It weakened 0.6 percent to 87.63 pence per euro.
Barclays Plc cut its forecast for the pound today, citing Britain’s “monetary policy and fiscal concerns.” UBS and Standard Bank Plc recommended investors sell sterling against the U.S. dollar.
Gilts Decline
The yield on the benchmark 10-year gilt yield rose 7 basis points to 4.17 percent, after earlier reaching 4.18 percent, the highest since November 2008, according to generic data compiled by Bloomberg. The yield is up 13 basis points this week, after gaining 16 basis points last week.
The premium investors demand to hold 10-year U.K. bonds instead of two-year securities widened to 302 basis points, the most since Nov. 11, according to generic data.
The U.K. will auction 3 billion pounds ($4.6 billion) of 2019 bonds on Feb. 24. It may also sell a 4 percent security maturing in 2060 via banks next week.
“Investors have in mind this long-dated supply next week,” said Marc Ostwald, a strategist in London at Monument Securities Ltd., a broker for banks and investors. “Big concessions have to be made.”
The U.K. is selling record amounts of debt to help finance economic-stimulus measures. The government yesterday posted an unexpected budget deficit for January after tax revenue slumped.
Disagreement on Finances
Politicians, preparing for a general election that Prime Minister Gordon Brown must call within weeks, disagree on the best way to handle the country’s finances. Nobel Prize-winners Joseph Stiglitz and Robert Solow are among 67 economists backing Brown’s stance that it’s too soon to start cutting the deficit. Another 20 economists criticized his position earlier this week.
The 10-year gilt underperformed the equivalent-maturity German bund, widening the difference in yield between the two securities to 88 basis points, the most since July 2007, according to Bloomberg generic data. British 10-year bonds yield more than Italian and Spanish debt, the data show.
Retail sales excluding gasoline fell 1.2 percent last month from December, the Office for National Statistics said today in London. Economists predicted a 0.5 percent drop, according to the median of 26 forecasts in a Bloomberg News survey.
- Esprit Leads Hong Kong Consumer Stocks Lower o
- Liberty Completes Sale of 38% Jupiter Stake to
- Canada Retail, Jobless Data Cement Consumer Re
- Canada Stocks Rise for Eighth Day as Energy, B
- Canada’s Dollar Rises to Highest in Almost Mo
- U.K. Retail Sales Drop Twice as Much as Foreca
- U.K. Stocks Rise, Extend Second Weekly Rally;
- Pound Slides to Nine-Month Low Versus Dollar;
- EasyJet CEO Says His Bonus Was ‘Commercial De
- Charter International Falls After Profit Plung