Pound jumps as U.K. policy makers end push for more bond buying

QE Ditched

“Let’s see what form of forward guidance we have in August as clearly they put QE in the bin,” said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale SA in Paris. “We could have something a bit more specific. That could support the three- to five-year sector” of the government bond market, he said.

The yield difference, or spread, between 10-year Treasuries and similar-maturity gilts narrowed. The U.K. securities yielded 18 basis points less than their U.S. peers, compared with 27 basis points yesterday, the biggest discount since August 2006.

The Bank of England kept its main interest rate at a record-low 0.5% on July 4, left its asset-purchase target at 375 billion pounds and signaled it would keep borrowing costs low for longer than investors had expected. Policy maker Fisher said yesterday the unwinding of stimulus in the U.K. may be “years in the future.”

Unemployment Drops

Jobless claims fell 21,200 in June from the previous month to 1.48 million, the biggest drop since June 2010, the Office for National Statistics in London said today. Economists forecast a decline of 8,000 based on the median of 23 estimates in a Bloomberg survey. Unemployment as measured by International Labour Organisation standards fell 57,000 to 2.51 million in the three months through May. The rate was unchanged at 7.8%.

The pound has strengthened 2.2% in the past three months, according to Bloomberg Correlation-Weighted Indexes, as data showed the U.K. economy returned to growth in the first quarter and measures of services, manufacturing and construction all rose in June. The dollar rose 2.6% and the euro gained 3.2%, the indexes, which track 10 developed-nation currencies, also show.

The National Institute of Economic and Social Research estimates economic growth accelerated to 0.6% in the second quarter.

Gilts handed investors a loss of 2.2% this year through yesterday, according to Bloomberg World Bond Indexes. German bonds declined 0.7% and Treasuries fell 2.5%, the indexes show.

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