BLBG: Pound Set for Biggest Weekly Gain Since June on Recovery Signs
By Lukanyo Mnyanda
Oct. 16 (Bloomberg) -- The pound strengthened against the euro, poised for its biggest weekly gain in more than four months, on speculation the economy is showing sufficient signs of recovery for policy makers to pause asset purchases.
Sterling also rose to the highest level in more than three weeks against the dollar as the FTSE 100 Index of stocks headed for a second weekly advance. Data next week may show the U.K. economy emerged from its recession in the third quarter and retail sales rose in September, according to Bloomberg surveys. Policy makers, though unlikely to stop purchases, may pause to give themselves the option of “doing more later,” the Financial Times cited Bank of England Markets Director Paul Fisher yesterday as saying.
“If we see more encouraging data, sterling can benefit further,” said Roberto Mialich, a senior global currency strategist in Milan at UniCredit SpA. “We don’t think more quantitative easing is a done deal. There might be further potential support for sterling if the Bank of England dismisses speculation of more to come.”
The U.K. currency strengthened 0.7 percent to 91.26 pence per euro as of 12:41 p.m. in London, adding to a 1.7 percent gain yesterday. Sterling advanced 1.9 percent since Oct. 9, set for its biggest weekly gain since the period through June 12.
It climbed 0.2 percent to $1.6310, after earlier rising to $1.6400, the strongest level since Sept. 23. It advanced 2.9 percent in the week, its biggest gain since May.
Gross Domestic Product
Gross domestic product probably increased 0.1 percent in the third quarter after declining by 0.6 percent in the six months through June, according to the median forecast of 18 economists in a Bloomberg survey. The Office for National Statistics is scheduled to release the data on Oct. 23. Output shrank in each of the five quarters through June.
Retail sales probably grew by 0.5 percent last month after stagnating in August, according to a separate Bloomberg survey before the report on Oct. 22. The Bank of England will release the minutes of its latest policy meeting next week.
The U.K. currency pared gains against the dollar after Bank of America Corp., the biggest U.S. lender, posted its second quarterly loss. U.S. stock futures declined.
Sterling declined 6.6 percent against the euro since June as the central bank increased its asset-purchase program and Bank of England Governor Mervyn King was cited in the Newcastle Journal as saying the pound’s weakening was “helpful” to the economy. It gained 12 percent versus the euro in the first half amid signs the slump was easing.
Britain faces the danger of a currency crisis after policy makers allowed the pound to become “seriously undermined,” according to HSBC Holdings Plc Chief Economist Stephen King.
Policy Options
Rising asset prices and improved confidence may be signs the program is working, central bank Deputy Governor Charles Bean said this week. The Bank of England this year cut its main interest rate to an all-time low of 0.5 percent and began buying 175 billion pounds ($286 billion) of assets in an attempt to contain borrowing costs.
The short-sterling interest-rate futures contract expiring in March 2010 increased 2 basis points to 0.86 percent, signaling some investors are adding to bets policy makers will increase interest rates. The rate has risen from 0.78 percent on Sept. 28, the lowest level this year.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
