British Pound Rallies Versus Dollar, Euro as Services Growth Accelerates

The pound gained versus the dollar and the euro after a report showed U.K. services growth unexpectedly accelerated in October, bolstering the view that the Bank of England will keep its policy unchanged tomorrow.

Sterling climbed to a nine-month high against the dollar before the U.S. Federal Reserve concludes its two-day policy meeting today, when it’s forecast to announce a further $500 billion of Treasury purchases. The Bank of England will keep its asset-purchase target at 200 billion pounds ($321 billion), a separate survey showed.

“The Bank of England isn’t going to follow the Fed into quantitative easing and that should be bullish for sterling,” said Geoff Kendrick, head of European foreign-exchange strategy at Nomura International Plc. “We recommend buying the pound against the euro.”

The pound rose 0.4 percent to $1.6099 as of 5:09 p.m. in London after rising to $1.6156, the highest since Jan. 29. It appreciated to 87.29 pence per euro from 87.48 pence yesterday. Sterling strengthened 1.1 percent to 130.80 yen.

The services gauge rose to 53.2 from 52.8 in September, Markit Economics and the Chartered Institute of Purchasing and Supply said today. Economists forecast a decline to 52.6, according to the median of 25 estimates in a Bloomberg News survey. A reading above 50 indicates growth.

Gilts Advance

U.K. government bonds advanced, pushing the yield on the 10-year gilt down four basis points to 3.00 percent. The 4.75 percent security due March 2020 gained 0.38, or 3.8 pounds per 1,000-pound face amount, to 114.20. Two-year yields declined two basis points to 0.67 percent.

Gilts advanced alongside German government bonds and Treasuries as investors held on to safer assets ahead of the Fed announcement, according to Luca Jellinek, head of European interest-rate strategy at Credit Agricole Corporate & Investment Bank in London.

Royal Bank of Scotland Group Plc today pushed back its forecast for the Bank of England to increase its bond-purchase plan to February from November. The bank retains its positive view on gilts.

“Our bullish gilts call wasn’t based solely on quantitative easing coming this month,” said Andy Chaytor, an interest-rate strategist at RBS in London. “It doesn’t alter the broad brush, but it does alter how they might perform near- term.”

The 10-year breakeven rate, a gauge of market expectation of inflation derived from yield differences between nominal and index-linked bonds, has narrowed to 2.82 percentage points from 2.84 percentage points last week, Bloomberg data show.

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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