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Pound Reaches 7-Year High Versus Euro as ECB Reveals QE Program

The pound rose to its strongest level in almost seven years against the euro as the European Central Bank said it would inject more than 1.1 trillion euros ($ 1.2 trillion) into the eurosystem through buying debt in the region.

Sterling’s third weekly advance versus the common currency was helped when the U.K.’s unemployment rate fell to a six-year low and December retail sales unexpectedly rose. The pound declined to the lowest level in 18 months against the dollar as minutes from the Bank of England’s latest policy meeting showed officials voted unanimously for the first time since July to hold interest rates at record lows. U.K. government bonds rose, with 10-year yields touching the least since August 2012.

“We’ve broken through some pretty important resistance and supports in euro-sterling,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “It seems that with the ECB’s actions, where they have more than delivered on their commitment to increase their balance sheet, it’s probably the case that this down move in euro-sterling will continue. You just don’t have any reason to buy the euro now from an investment point of view.”

The pound appreciated 1.8 percent to 75.02 pence per euro in the week through 4:55 p.m. Friday in London. It touched 74.28 pence that day, the strongest since February 2008. Sterling weakened 0.8 percent in period through Jan. 23 to $ 1.5029, having grazed $ 1.4952 the same day, the lowest since July 2013. The U.K. currency will strengthen to 72 pence per euro by year-end, Commerzbank’s Kinsella forecast.

Euro-Dollar Tumble

ECB President Mario Draghi said in Frankfurt on Thursday that the central bank will buy private and public securities of as much as 60 billion euros ($ 68 billion) a month in program intended to run until September 2016. That implied more than 1.1 trillion euros will additionally circulate, potentially weakening the euro against the pound and other currencies.

The euro tumbled 2.5 percent in the week to $ 1.1276 and was as low as $ 1.1115, an 11-year record.

BOE policy makers Martin Weale and Ian McCafferty dropped their call for an interest-rate increase as plunging oil prices raised the risk that slow inflation would become entrenched, minutes from the Jan. 7-8 Monetary Policy Committee meeting published on Wednesday in London showed. The benchmark interest rate has been at 0.5 percent since March 2009.

Forward contracts showed investors are betting the sterling overnight interbank average, or Sonia, will rise to 0.50 percent at the BOE’s December policy meeting, from 0.435 percent next month. Royal Bank of Canada, BNP Paribas SA and Deutsche Bank all pushed back their forecasts for the first BOE rate increase to November at the earliest.

Gilt Reaction

Benchmark 10-year gilt yields fell six basis points, or 0.06 percentage point, in the week to 1.48 percent. The 2.75 percent bond due in September 2024 rose 0.515, or 5.15 pounds per 1,000-pound face amount, to 111.36. The rate brushed 1.44 percent on Friday, the lowest since August 2012.

Thirty-year yields dropped eight basis points in the week to 2.15 percent, having touched a record-low 2.124 percent.

Data set to be released next week will show the U.K. economy grew 0.6 percent during the fourth quarter, from 0.7 percent in the three months through September, according to the median estimate of economists in a Bloomberg News survey.

BOE Governor Mark Carney is scheduled to speak on Saturday in Davos, Switzerland.

To contact the reporter on this story: Eshe Nelson in London at [email protected]

To contact the editors responsible for this story: Paul Dobson at [email protected] Todd White, Mark McCord

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