(Bloomberg) The pound advanced to the strongest level in almost seven years against the euro after the European Central Bank announced a plan to buy its region’s sovereign bonds, causing the common currency to decline.
Sterling weakened for a third day versus the dollar even as data showed U.K. retail sales unexpectedly rosed in December. Britain’s currency has fallen 1.1 percent this month among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes as investors pushed back bets on when the Bank of England will raise interest rates and before a U.K. general election scheduled for May. The nation’s government bonds rose, with the 10-year yield falling to the lowest level since August 2012.
“We have a window for sterling to appreciate against the euro before the run-up to the May elections, and political risk gets back into the pound,” said Chris Turner, head of currency strategy at ING Groep NV in London. The pound could appreciate to 74 pence per euro before the election as ECB President Mario Draghi “certainly surprised yesterday with the breadth of the QE plan,” he said. ING was the world’s most-accurate currency forecaster in 2014.
The pound appreciated 1.1 percent to 74.90 pence per euro at 11:23 a.m. London time, the strongest level since February 2008. Sterling fell 0.1 percent to $1.4988, bringing its decline for the week to 1.1 percent. The common currency fell to as low as $1.1220, its lowest level in 11 years against the dollar.
The euro has dropped 5.9 percent in a month among 10 top currencies tracked by Bloomberg Correlation-Weighted Indexes, while the dollar gained 3 percent.
The pound headed for a third week of gains versus the euro as Draghi said in Frankfurt on Thursday that the central bank will buy private and public securities of as much as 60 billion euros ($67 billion) a month in program intended to run until September 2016.
U.K. sales including auto fuel rose 0.4 percent from November, the Office for National Statistics said in London Friday. Economists forecast a 0.6 percent drop, according to the median estimate in a Bloomberg News survey.
Royal Bank of Canada said the Bank of England won’t raise rates until November 2015, according to senior U.K. economist Sam Hill in London. RBC previously forecast an increase in June 2015. BNP Paribas SA said borrowing costs will rise in February 2016, delayed from an earlier prediction of August 2015, London-based economist Dominic Bryant wrote in a note to investors Thursday.
Benchmark 10-year gilt yields dropped five basis points, or 0.05 percentage point, to 1.47 percent after earlier touching 1.44 percent, the lowest since August 2012. The 2.75 percent bond due in September 2024 rose 0.475, or 4.75 pounds per 1,000-pound face amount, to 111.475.
By Eshe Nelson Jan 23, 2015
