The pound fell to its weakest level this month against the dollar as the Bank of England kept interest rates at a record low to safeguard the economy even with inflation at twice its target.
Sterling has declined in five of the past six trading days against its American counterpart. Officials held the main rate at 0.5 percent, as predicted by all 61 economists surveyed by Bloomberg News. The bank’s decision to maintain its bond holdings at 200 billion pounds ($323 billion) was also anticipated by economists in a separate survey. U.K. gilts rose as investors reduced bets on higher rates and declines in equities boosted demand for safer assets.
“There might have been some pricing of a move, so obviously when it didn’t happen sterling weakened slightly,” said Steven Barrow, London-based head of research for Group-of- 10 currencies at Standard Bank Plc. “The economy remains somewhat fragile, and that’s going to weigh on sterling.”
The pound depreciated 0.7 percent to $1.6085 at 2:07 p.m. in London, after weakening to $1.6064, the lowest level since Feb. 25. It was little changed at 85.90 pence per euro. Prior to today, the pound had gained 3.8 percent against the dollar this year amid mounting pressure on policy makers to raise the key rate as inflation persists above their 2 percent target. Inflation accelerated to 4 percent in January.
‘Futile Gesture’
Policy makers are seeking to balance their mandate to curb price increases with the danger of the economy slipping back into a recession after output shrank 0.6 percent in the fourth quarter. Bank of England Governor Mervyn King said this month that raising rates too soon would be a “futile gesture.”
Details of policy makers’ deliberations will be released on March 23, when minutes of the meeting that ended today are published. The government’s statistics office is scheduled to release February’s inflation data a day earlier. Three of the nine-member Monetary Policy Committee voted to raise the benchmark-interest rate to tame inflation at last month’s meeting.
Short-sterling contracts climbed, pushing the implied yield on the contract maturing in June down one basis point to 1.08 percent, as investors pared bets that borrowing costs will rise. The Bank of England hasn’t adjusted rates since March 2009.
Gains in government bonds pushed the 10-year gilt yield five basis points lower to 3.61 percent. The 4.75 percent security due March 2020 rose 0.420, or 4.2 pounds per 1,000- pound face amount, to 108.69.
Source: Bloomberg By
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