The pound advanced for a third day against the dollar after Bank of England Governor Mervyn King said policy makers aren’t trying to talk it down, damping speculation they are seeking a weaker sterling to spur growth.
Sterling headed for its biggest weekly gain in a month versus the euro after King said in an interview with ITV News yesterday that “markets determine the level of exchange rate, not us.” A gauge of U.K. inflation expectations fell as the central bank’s Chief Economist Spencer Dale today defended its emphasis on maintaining price stability. U.K. 10-year government bonds fell, paring a weekly advance.
“King had no choice when put on the spot to clarify that they take their mandate very seriously,” said Neil Mellor, a foreign-exchange strategist at Bank of New York Mellon Corp. in London. “It all comes down to a market that has become totally hooked on what central bankers have to say. Sterling could be in for a test of the $1.52 level.”
The pound rose 0.3% to $1.5129 at 2:57 p.m. London time after climbing to $1.5177, the highest since March 5. The currency last traded at $1.52 on Feb. 28. Sterling weakened 0.1% to 86.32 pence per euro, still set for a 1% gain this week, the biggest increase since the period ended Feb. 8.
“We’re certainly not looking to push sterling down,” King told ITV, according to a transcript of his remarks. He also said an economic recovery is “in sight” said sterling was “broadly stable” and “at the same level we were after the impact of the financial crisis.”
Sterling has gained 1% this week, the best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 0.1% and the dollar dropped 0.6%.
The pound has slumped 3.4% against the dollar since the start of last month. In that time, minutes of the central bank’s February decision showed King and two other policy makers were defeated in a push for more stimulus and Moody’s Investors Service cut the U.K.’s top credit rating.
“The pound has seen a sizeable bounce above $1.51, which we suspect has been primarily driven by the market’s overextended short positioning,” BNP Paribas SA analysts led by Steven Saywell in London wrote in an e-mailed note to clients. “Pound-dollar has already broken above the $1.5153 resistance level noted by our technical analyst, with the $1.5218 to provide next resistance.”
Resistance is an area on a price graph where technical analysts anticipate sell orders to be clustered.