Publications
Partners
London - The pound advanced versus most of its 16 major peers after a report showed the UK’s economic expansion accelerated in the fourth quarter.
Sterling’s gain versus the dollar pared a decline on Wednesday which was the biggest in almost two weeks. Britain’s economy grew 0.5% in the final three months of 2015, compared with 0.4% in the third quarter, and matching the median forecast of analysts surveyed by Bloomberg.
The pound still headed for its third monthly decline versus the US currency and the biggest drop since March, having slumped to an almost seven-year low last week, weighed down by whipsawing financial markets and concern that the UK will vote to exit the European Union.
“Gross domestic product wasn’t as weak as it could have been,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.
“Given the way the market is trading, a lot of people thought the same. I’d want to be selling into the rally though, given the ongoing headwinds.”
The pound rose 0.7% to $1.4333 at 2:01 p.m. London time, after falling to $1.4080 on January 21, the lowest since March 2009. It is still set for a monthly decline of 2.7%. Sterling gained 0.5% to 76.18 pence per euro, having weakened 1% a day earlier.
Rate outlook
The outlook for UK interest rates remains muted, with Bank of England Governor Mark Carney telling lawmakers in London on January 26 that “we will have to see the renewal of growth above trend, we’ll have to see unit labour costs pick up, and we’ll have to see a continued firming of core inflation” before tightening policy.
Forward contracts based on the sterling overnight index average, or Sonia, show traders aren’t fully pricing in a quarter-point increase to the BOE’s 0.5% official bank rate until after March 2017.
UK government bonds advanced for the first time in three days, with the 10-year yield falling four basis points, or 0.04 percentage point, to 1.67%. The 2 percent gilt due in September £2 3.60 per £1 000 face amount, to 102.915. The additional yield investors demand to hold similar-maturity US Treasuries over gilts increased to 33 basis points.
“Concerns over China and global growth have led to quite extreme conditions in the UK rates market,” Adrian Owens, a London-based money manager at GAM (UK), which has about $123bn in assets, wrote in an e-mailed comment.
“The market is not pricing in enough of rate hikes in the U0K On the long end, 10-year gilts are looking very rich compared to Treasuries.”
Sterling’s gain versus the dollar pared a decline on Wednesday which was the biggest in almost two weeks. Britain’s economy grew 0.5% in the final three months of 2015, compared with 0.4% in the third quarter, and matching the median forecast of analysts surveyed by Bloomberg.
The pound still headed for its third monthly decline versus the US currency and the biggest drop since March, having slumped to an almost seven-year low last week, weighed down by whipsawing financial markets and concern that the UK will vote to exit the European Union.
“Gross domestic product wasn’t as weak as it could have been,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.
“Given the way the market is trading, a lot of people thought the same. I’d want to be selling into the rally though, given the ongoing headwinds.”
The pound rose 0.7% to $1.4333 at 2:01 p.m. London time, after falling to $1.4080 on January 21, the lowest since March 2009. It is still set for a monthly decline of 2.7%. Sterling gained 0.5% to 76.18 pence per euro, having weakened 1% a day earlier.
Rate outlook
The outlook for UK interest rates remains muted, with Bank of England Governor Mark Carney telling lawmakers in London on January 26 that “we will have to see the renewal of growth above trend, we’ll have to see unit labour costs pick up, and we’ll have to see a continued firming of core inflation” before tightening policy.
Forward contracts based on the sterling overnight index average, or Sonia, show traders aren’t fully pricing in a quarter-point increase to the BOE’s 0.5% official bank rate until after March 2017.
UK government bonds advanced for the first time in three days, with the 10-year yield falling four basis points, or 0.04 percentage point, to 1.67%. The 2 percent gilt due in September £2 3.60 per £1 000 face amount, to 102.915. The additional yield investors demand to hold similar-maturity US Treasuries over gilts increased to 33 basis points.
“Concerns over China and global growth have led to quite extreme conditions in the UK rates market,” Adrian Owens, a London-based money manager at GAM (UK), which has about $123bn in assets, wrote in an e-mailed comment.
“The market is not pricing in enough of rate hikes in the U0K On the long end, 10-year gilts are looking very rich compared to Treasuries.”
