Pound Advances Because of BOE Minutes

The Pound’s high against USD is still continuing after 4 days and the same has strengthened by 0.1% against the greenback. 1 Sterling costs $1.6273 now. At one point of time today, Sterling was at $1.6307, marking its highest level since 21st September. However, Sterling plummeted by 0.1% against Euro and is priced at 81.49 Pence per Euro.

Sterling was hugely helped by the decision of policy makers of Bank of England to pause the bond-buying programs. The policy makers did so as the Euro zone crisis has kind of eased down and inflation concerns for UK still persist. A decision was also made on keeping the benchmark interest rate of UK at 0.5%, a record low. UK Government bond, on the other hand, is on its longest losing streak since February, 2011 as it has depreciated for the 9th day consecutively.

Mizuho Corporate Bank’s Head of European Hedge-Fund Sales Department, Neil Jones stated that investors will interpret Bank of England’s decision as hawkish. Neil added that the investors are now looking forward to see a good economic performance in the 1st quarter of next year for UK and therefore, Pound assets will be on demand. Neil also commented that Sterling will strengthen further against USD by the end of 2012’s first quarter and it may well reach $1.67.

Bank of England is currently depending on the Funding for Lending scheme in an attempt to boost the credit of the country. Coming to gilts, the 10-year gilt yield advanced by 1 basis point and is at 1.96%. It was at 1.99% at one time of the day, which is the highest value for the same since 10th May. On the other hand, the 1.75% bond due in September, 2022 went down by 0.05 and is at 98.16 now.
The 10-year break even rate of UK also plummeted by 2 basis points. Incidentally, it marks the expectation of inflation in a country and is derived from the yield difference between index-linked securities and gilts.

The Central Bank of England stated that the strength that Pound is currently showing is not good for the UK economy. It is kind of worsening the UK competitiveness and therefore is not welcomed by them. Throughout this year, Pound has advanced by 1.5%, whereas other major currencies such as USD and Euro declined by 3.6% and 0.9% respectively.