Sterling gained versus all of its 16 major peers after minutes of the BOE’s Aug. 6-7 meeting showed Martin Weale and Ian McCafferty voted to raise the benchmark rate by 25 basis points from a record-low 0.5 percent. Eleven of 18 analysts in a Bloomberg News survey had predicted a unanimous vote to keep borrowing costs unchanged. Short-sterling futures contracts fell and U.K. government bonds dropped as investors raised bets that borrowing costs will increase.
“The vote shows that the Bank of England is gradually moving towards raising rates,” said Lee Hardman, a foreign- exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Clearly the minutes are more hawkish than the quarterly Inflation Report, so that is providing some support for the pound today.”
The pound strengthened 0.4 percent to 79.85 pence per euro at 2:31 p.m. London time. Sterling advanced 0.2 percent to $1.6648 after earlier falling to $1.6602, the weakest level since April 7.
The release of the MPC’s voting record follows the publication of the BOE’s Inflation Report on Aug. 13, in which it cut its forecast for wage growth and said inflation would remain below its target throughout its forecast period. At a press conference that day, Carney said it wasn’t yet time to begin tightening policy.
“A majority vote for a rate hike still looks more like the first quarter, at the earliest,” Marc Ostwald, a strategist at ADM Investor Services International Ltd. in London, wrote in an e-mailed note. “Sentiment on the rate outlook will doubtless continue to swing quite sharply.”
The pound has gained 7.7 percent in the past year, boosted by speculation that the central bank was moving toward raising rates, making it the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. It weakened 1.3 percent in the last month.
Sterling will advance 1.5 percent to $1.69 and appreciate 2.3 percent to 78 pence per euro by the end of the year, according the median estimate of analysts surveyed by Bloomberg.
The U.K. currency will strengthen against the 18-member common currency in particular, Bank of Tokyo-Mitsubishi’s Hardman said, as the struggling euro-area recovery prompts the European Central Bank to keep rates low for longer than its British counterpart.
Bullish bets on sterling, as measured by the Commodity Futures Trading Commission, rose from the lowest level since February last week. Bets by hedge funds and other large speculators on an advance in the pound exceeded those wagering on a decline by 18,799 contracts on Aug. 12, CFTC data show. That’s up from 12,121 a week earlier, the least since February.
The implied yield on the short-sterling contract expiring in December 2015 jumped six basis points to 1.53 percent.
The 10-year gilt yield rose one basis point, or 0.01 percentage point, to 2.41 percent. The 2.25 percent bond due in September 2023 fell 0.055, or 55 pence per 1,000-pound face amount, to 98.725.
“Big picture I am bearish but given the market’s current frame of mind I am dubious that this selloff will run that far,” said Jason Simpson, U.K. rate strategist at Societe Generale SA in London. “Until there is a more balanced view to risk taking and we get a little more clarity on the state of health on global economy, it is likely that the market will be extremely cautious about going short.” A short position is a bet an asset will decline.
The Debt Management Office is scheduled to auction 3.25 billion pounds of gilts due in September 2024 tomorrow. The U.K. last sold the securities on July 22 at an average yield of 2.70 percent, the lowest since July 2013.
Gilts returned 6.8 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries earned 4.1 percent and German securities gained 6.7 percent.