BLBG: Pound Drops as Retail Sales Falter, Tucker Signals Extension
By Matthew Brown
Oct. 22 (Bloomberg) -- The pound fell as a report showed U.K. retail sales unexpectedly stagnated in September and investors scaled back expectations that the Bank of England will pause its asset-purchase plan.
The British currency dropped the most in almost two weeks against the dollar and government bonds erased declines after the Office for National Statistics said retail sales were unchanged from August. Central bank Deputy Governor Paul Tucker said expanding so-called quantitative easing is “possible” if necessary, the Scotsman newspaper reported today.
“The weaker retail sales reading is weighing on the pound,” said Ian Stannard, a foreign-exchange strategist in London at BNP Paribas SA, France’s largest bank. “There seems to be a desire to extend quantitative easing from certain BOE policy makers.”
The pound fell 0.4 percent to $1.6539 as of 11:14 a.m. in London. Against the euro, it was 0.1 percent lower at 90.53 pence. The yield on the 10-year gilt was little changed at 3.71 percent, after earlier rising as much as 5 basis points. The two-year yield was 1 basis point higher at 0.97 percent after climbing as much as 6 basis points.
Sterling advanced to the highest level against the dollar in more than a month yesterday and 10-year gilt yields increased by the most since July 23 after minutes of the Bank of England’s Oct. 8 meeting showed the nine policy makers voted unanimously to keep the asset-purchase program unchanged.
Five-Year Sale
The pound has risen 13 percent against the dollar this year and 5.7 percent against the euro amid signs Britain’s economy is emerging from the recession. The Bank of England this year cut its benchmark interest rate to a record low of 0.5 percent and committed to buying 175 billion pounds of bonds in an attempt to lower borrowing costs. Policy makers next meet on Nov. 5.
The U.K. sold 4.75 billion pounds ($7.9 billion) of five- year notes at an auction today, attracting bids that were 1.56 times the amount offered, the Debt Management Office said. The government sold 7 billion pounds of 50-year notes though a group of banks yesterday.
“Over 10 billion pounds of supply in two days takes some digestion,” said Jason Simpson, a U.K. interest-rate strategist in London at Royal Bank of Scotland Plc.
Gilts have lost investors 1.1 percent this month, compared with a 0.5 percent drop for German government bonds and a 0.4 percent loss for U.S. Treasuries, according to Merrill Lynch & Co. indexes.
