Pound Falls, Gilts Rise as Investors React to Brexit and BOE
Pound Falls, Gilts Rise as Carney Tempers Rate-Hike Expectations
(Bloomberg) -- The pound fell for a second day against the dollar and U.K. government bonds advanced as markets were buffeted by both the Bank of England and Brexit.
The pound declined as investors questioned the Bank of England’s commitment to raising interest rates in the near term following testimony from policy makers including Governor Mark Carney. It then extended losses as the European Union’s chief negotiator Michel Barnier indicated Brexit talks would not progress to trade until at least December.
With the U.K. initially hoping the EU would give the green light to move Brexit talks onto trade at a summit this week, the process is instead deadlocked on the issue of Britain’s financial commitment. Brexit Secretary David Davis said Tuesday the British wouldn’t make any more offers until after the summit, which ends Friday. Barnier said it was important to keep up momentum over the coming two months but “to accelerate you need two.”
“The correction we are seeing today is more about market positioning than any fundamental drivers,” said Valentin Marinov, head of Group-of-10 currency research at Credit Agricole SA’s corporate and investment-banking unit in London. “The pound could regain some footing if the labour market comes in supportive tomorrow.”
The pound fell 0.6 percent to $1.3175 as of 4:30 p.m. London time. Sterling weakened 0.2 percent to 89.19 pence per euro. The yield on benchmark 10-year gilts slid six basis points to 1.28 percent, after touching 1.27 percent, the lowest level since Aug. 29.
The BOE testimony in front of lawmakers was less hawkish than hoped, with Carney sticking to his line that policy adjustments would likely be made in the coming months. Deputy Governor David Ramsden said he wasn’t in the majority of Monetary Policy Committee members pushing for a rate increase, and new MPC member Silvana Tenreyro said there was still some slack in the U.K. economy. The BOE is scheduled to announce its policy decision on Nov. 2.
To contact the reporter on this story: Charlotte Ryan in London at cryan147@bloomberg.net.
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Keith Jenkins, Neil Chatterjee