GBP Drops for 3rd day against the Greenback
- global fx
- Dec 23, 2014
- 2 min read
The Great British Pound declined for a third day versus the USD
ollar after reports showed the U.K. current-account deficit widened in the third quarter, boosting the case for the Bank of England to keep interest rates at a record low.
Sterling weakened for a second day against the euro as the Office for National Statistics said today the deficit increased to 27 billion pounds ($42 billion) from 24.3 billion pounds in the second quarter. The rate of economic growth from a year ago was revised down to 2.6 percent from 3 percent despite an expansion in the three months through September that matched an earlier 0.7 percent estimate. U.K government bonds advanced, pushing 10-year yields down for a third day.
“The pound weakened a bit after the data,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “I don’t think the market liked the fact that the current-account deficit worsened. The pound will probably move in a narrow range as people refrain from taking new positions before the new year.”
The pound fell 0.4 percent to $1.5534 at 12:26 p.m. London time. Sterling weakened 0.2 percent to 78.83 pence per euro.
The U.K. currency has gained 5.4 percent in the past 12 months, the best performer after the dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid investor bets in the first half of the year that the BOE would hasten the timing of its first interest-rate increase since July 2007. The greenback surged 12 percent, the euro dropped 1.7 percent and the yen fell 4.8 percent.
Gilt Yield
The 10-year gilt yield dropped one basis point, or 0.01 percentage point, to 1.81 percent. The 2.75 percent bond due in September 2024 rose 0.095, or 95 pence per 1,000-pound face amount, to 108.31.
Longer-dated gilts are outperforming short-dated securities by the most in three years as investors favor longer maturities while inflation remains subdued.
Securities due within three years returned 1.6 percent this year while those with maturities of 10 years or longer gained 23 percent, according to Bank of America Merrill Lynch Bond Indexes. That’s the best performance of longer-dated gilts relative to their shorter-dated peers since 2011.
The 10-year break-even rate, a market gauge of inflation expectation derived from yield difference between nominal and index-linked bonds, was little changed at 2.61 percentage points. The average over the past 10 years was 2.86 percentage points.
Gilts returned 14 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities earned 9.9 percent and U.S. Treasuries 6.1 percent.
