The pound traded near the highest level in three weeks against the dollar as a report showed U.K. inflation remained above the government’s 3 percent limit last month.
Consumer prices rose 3.3 percent from a year earlier after a 3.2 percent increase in October, the Office for National Statistics said today in London. That’s the highest since May and exceeded the 3.2 percent median forecast of 33 economists in a Bloomberg survey. Sterling advanced above $1.59 for the first time since Nov. 23. The U.K. housing-market gauge stayed close to the lowest in 18 months in November. Government bonds slipped, erasing earlier gains.
“Inflation expectations are bolstering sterling,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There seems little scope for any moderation in inflation, given there’s an increase in sales tax next month. This suggests the chances of further quantitative easing by the Bank of England are extremely slim.”
The pound rose against the dollar, advancing 0.1 percent to $1.5882 as of 10:08 a.m. in London. It reached $1.5911 earlier. Sterling depreciated 0.3 percent to 84.65 pence per euro.
“There’s been an element of profit-taking into the year- end as investors sell their dollars,” Simon Smollett, a currency analyst at Credit Agricole Corporate & Investment Bank in London, said in a telephone interview.
Inflation
Inflation has been above the government’s 3 percent limit for nine months and a sales-tax increase in January may add to prices in 2011. Bank of England Deputy Governor Charles Bean said yesterday the strength of inflation has increased the risk to price expectations and there may also be less slack in the economy than previously thought.
Bank of England policy makers last week held their asset- purchase program unchanged at 200 billion pounds ($318 billion). Governor Mervyn King has said that consumer-price gains will stay “elevated” next year. Inflation has been stoked by higher costs of imports, partly reflecting the weakness of the pound.
The number of real-estate agents and surveyors saying prices fell exceeded those reporting gains by 44 percentage points, compared with minus 49 points in October, the Royal Institution of Chartered Surveyors said today.
Sterling has lost 0.3 percent in the past week, according to Bloomberg Correlation-Weighted Currency Indexes, which track a basket of 10 developed-country currencies.
Since the end of 2009, Britain’s currency has lost 4.3 percent, compared with a 9 percent decline by the euro and a 2.3 percent loss by the dollar.
U.K. government bonds fell, with the 10-year gilt yield gaining two basis points to 3.57 percent. The two-year yield rose one basis point to 1.17 percent.
The Debt Management Office plans to sell 3.5 billion pounds of securities maturing in January 2016 tomorrow and 825 million pounds of inflation-protected securities due 2042 on Dec. 16.
Gilts returned 5.6 percent this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Treasuries gained 5.9 percent and German debt, the euro-area’s benchmark securities, returned 5.8 percent, the EFFAS indexes show.
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