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'No move' on interest rates as sterling hits 17-month dollar low

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Martin Weale who has previously voted in favour of rate hikes

Martin Weale who has previously voted in favour of rate hikes

Bloomberg

Martin Weale who has previously voted in favour of rate hikes

Sterling hit a 17-month low against the dollar amid speculation that Bank of England (BoE) policy makers will vote to keep interest rates at a record low throughout 2015.

Sterling is the worst performer among 10 developed-nation currencies tracked by Bloomberg.

Forward contracts show investors are betting the sterling overnight interbank average, or "Sonia", will be at 0.56pc at the BoE's November meeting, from 0.43pc this month, and compared with the benchmark interest rate of 0.5pc. The British central bank kept the rate unchanged yesterday, as predicted by all 42 economists surveyed by Bloomberg.

"The market has gone too far pushing the first rate hike out to early 2016," Steven Saywell, head of foreign-exchange strategy at BNP Paribas said.

"We don't write off a rate hike in 2015 from the Bank of England. Sterling to outperform the euro or Swiss franc is a great trade for this year," he said.

The pound was little changed at $1.5114 in London yesterday afternoon after earlier reaching $1.5035, the weakest level since July 2013. Sterling strengthened by 0.3pc against the euro to reach 78.14 pence.

Benchmark 10-year government bond yields rose four basis points, or 0.04 percentage point, to 1.65pc. The 2.75pc gilt due in September 2024 fell 0.335, or £3.35 per £1,000 face amount, to 109.775.

Gilts, jargon for UK bonds, returned 15pc last year, the most since 2011, according to Bank of America Merrill Lynch indexes, as stalling global growth and plunging commodity prices convinced investors rates are likely to stay lower for longer. As recently as August, the market was fully pricing in a 25 basis-point increase by February.

Minutes of the Bank of England's policy meeting that preceded the rates decision are due to be published on January 21, and will show whether monetary policy committee members Martin Weale and Ian McCafferty maintained their dissenting view.

They had previously voted in favour of a 0.25pc rate increase between August and December, saying a move is needed to prevent wage gains from feeding price pressures.

The Bank of England said it will reinvest £4.35bn this month related to maturing gilts from its £375bn programme of asset purchases that started in 2009. It plans to do that by buying debt evenly across buckets set to mature in three-to-seven years, over 15 years and seven-to-15 years, in that order, the central bank said yesterday in a statement.

Inflation-linked gilts were little changed even as a UK Statistics Authority report said Britain should move away from selling bonds tied to the retail-price index.

The yield on 10-year inflation-linked gilts was -0.94pc.

(Bloomberg)

Irish Independent