Pound falls below $1.60 on expectation BOE may signal further stimulus

The pound dropped below $1.60 for the first time in five weeks on speculation Bank of England officials meeting this week will signal they may introduce additional stimulus as the economy struggles to recover.

The U.K. currency weakened against all except one of its 16 major counterparts after a government report showed the trade deficit narrowed less in November than economists forecast. Policy makers, who started a two-day meeting today, will announce their decision on interest rates and so-called quantitative easing tomorrow, while minutes of the gathering will be released Jan. 23. Gilts were little changed.

“There’s been some loose talk with some people thinking there might be more QE highlighted tomorrow,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “Subsequently sterling has taken some heat so cable has had a go through that $1.60 threshold. If we close below the $1.5995 level that probably suggests we will see further weakness.”

The pound dropped 0.3% to $1.6012 at 4:38 p.m. after declining to $1.5993, the lowest level since Nov. 30. Sterling was little changed at 81.52 pence per euro, after depreciating to 81.62 pence yesterday, the weakest since Dec. 31. Cable refers to the pound-dollar exchange rate.

Bank of England policy makers will keep the benchmark interest rate at a record-low 0.5% and the asset-purchase target at 375 billion pounds tomorrow, separate Bloomberg surveys show.

Risks Persist

Policy makers voted 8-1 to leave their bond-purchase program on hold in December as immediate dangers from the euro- area crisis receded and near-term inflation risks persisted, according to minutes of that meeting released Dec. 19.

Most members of the Monetary Policy Committee “agreed that developments on the month had done little to alter the balance of arguments between maintaining and increasing” stimulus, according to the minutes. The current level of quantitative easing “seemed appropriate for the present,” it said.

The trade deficit was at 9.16 billion pounds compared with 9.49 billion pounds in October, the Office for National Statistics said in London. The median forecast in a Bloomberg News survey of 20 economists was 9 billion pounds.

The pound has fallen 0.9% in the past week, the worst performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.7% and the euro weakened 0.4%.

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