While you were sleeping: Pound gains on BOE asset purchases; dollar, yen drop

Friday 10th July 2009

The British pound surged after the Bank of England kept its quantitative easing target unchanged at 125 billion pounds, surprising investors who had expected an increase.

The BOE left its key interest rate at a record low 0.5% and said it would assess whether to print more money next month when it had more evidence of inflationary pressures.

The pound surged 1.8% to $1.6348 and strengthened to 85.79 pence per euro from 86.42. UK bonds tumbled after the announcement. The yield on the 10-year gilt jumped 15 basis points to 3.77% and two-year yields climbed 6 basis points to 1.16%.

Leaders of the Group of Eight nations avoided a clash with their counterparts in major emerging economies by agreeing not to devalue their currencies. Nations including Russia and China had suggested moving away from the greenback as the world’s reserve currency but British Prime Minister Gordon Brown said the issue wasn’t seriously discussed at the summit.

The US dollar weakened against most currencies and the yen fell after figures showed a decline in the number of Americans filing initial jobless claims, stoking optimism the world’s biggest economy may pull out of its slump and fueling risk appetite.

The Dollar Index, which measures the greenback against currencies of six major trading partners, fell 1.1% to 79.87.

The number of Americans filing new claims for jobless benefits fell by 52,000 to a seasonally adjusted 565,000 last week, the lowest since January. Still, data showed claims by people still on benefits after their initial week rose by 159,000 to a record 6.88 million in the week ended June 27.

Economists said the figures were distorted by lower-than-expected automotive layoffs in July, typically a month when plants slow output.

US Commerce Department figures showed wholesale inventories shrank for the ninth straight month in May by 0.8% to US$402.24 billion, the lowest level since August 2007.

US retailers reported a decline in sales for June, suggesting rising unemployment and cool summer weather were sapping consumer enthusiasm for spending.

June same-store sales fell 4.9 percent overall, according to Reuters.

The Dow Jones Industrial Average rose 0.1% to 8183.17 and the Standard & Poor’s 500 gained 0.4% to 882.68. The Nasdaq Composite advanced 0.3% to 1752.55.

JPMorgan Chase climbed 2.8% to US$33.62, leading gainers on the Dow, while Merck sank 3.7% to US$27.01, the biggest decliner. American International Group tumbled 28% to US$9.48, the biggest decline on the S&P 500.

Goldman Sachs Group climbed 3.4% to US$143.21 after Bank of America analyst Guy Moszkowski said the firm may reap US$26.45 billion in trading revenue this year, beating its 2007 record by being willing to take on risk in risk-averse markets.

Copper had its biggest gain in a month on optimism demand for the metal will pick up.

Copper for September delivery gained 3.6% to US$2.2375 a pound on the New York Mercantile Exchange. US crude oil rose 27 cents to US$60.41 a barrel.

Gold rose from a two-month low as the US dollar fell, stoking the investment appeal of the precious metals.

Gold futures for August delivery rose 0.8% to US$916.20 an ounce on the New York Mercantile Exchange.

In Europe, the Dow Jones Stoxx 600 rose 0.7% to 199.41 as Alcoa Inc., the first company on the Dow to report second-quarter earnings, posted a smaller-than-expected loss.

Rio Tinto climbed 3.8% as prices of metals revived. Daimler AG rose 2.7% after Bank of America Corp. upgraded European automakers to “overweight.” BMW rose 2.2%.

The UK’s FTSE 100 rose 0.5% to 4158.66 and Germany’s DAX 30 rose 1.3% to 4630.07. France’s CAC 40 gained 0.5% to 3025.94.

Businesswire.co.nz

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