Morgan Stanley Says BOE Exit From QE Is ‘Worrying’ Pound Bears

By Daniel Tilles

Oct. 30 (Bloomberg) -- The pound may get support from rules requiring U.K. financial institutions to boost their assets, which might spur gilt purchases from the Bank of England, according to Morgan Stanley.

“New Financial Services Authority regulations for U.K. banks might result in very large gilt purchases, possibly allowing the Bank of England an easy exit from its quantitative- easing program, something worrying pound bears,” strategist Stephen Hull in London wrote in a report dated yesterday.

The British currency may weaken in the “short term” because the central bank will probably extend its debt-buying program, according to Hull.

“The Bank of England looks likely to do more quantitative easing before it heads for the exit and that seems likely to hinder the pound in the short term,” he said.

Morgan Stanley recommended investors add to bets the pound will drop against the Norwegian krone.

Sterling rose 0.2 percent to 9.3678 kroner as of 7:24 a.m. in London.

To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net