Pound Gains Versus Dollar, Euro as Exports Gain Outweighs Spending Concern

The pound strengthened for a second day against the dollar as a report showed U.K. exports helped the economy resume growth in the first quarter, outweighing the biggest slump in consumer spending in almost two years.

Britain’s currency appreciated against all but one of its major peers, gaining most against South Africa’s rand. Gross domestic product expanded 0.5 percent in the first three months of this year, matching an initial estimate, data showed today. Exports rose 3.7 percent in the quarter and net trade added a record 1.7 percentage points to GDP growth. Consumer spending dropped 0.6 percent, the most since the second quarter of 2009.

“The growth data was in line with consensus,” said Chris Walker, a currency strategist at UBS AG in London. “There are signs that the economy is moving towards more export-driven growth and this is supportive for the pound.”

Sterling was 0.6 percent stronger at $1.6271 as of 4:19 p.m. in London after dropping to as low as $1.6132. The pound appreciated 0.7 percent to 86.57 pence per euro, after reaching 86.33 pence, the strongest since March 15. It gained 0.6 percent to 133.36 yen.

The British currency strengthened through its 100-day moving average, at 86.47 pence, for the first time since Feb. 28, Bloomberg data show.

The U.K. government is implementing the toughest budget squeeze since World War II in a bid to cut the bulk of the nation’s deficit by April 2015. Gross domestic product is forecast to expand 1.5 percent this year, after growing 1.6 percent last year, according to Bloomberg surveys of economists.

Risk Appetite

Two-year U.K. government note yields fell to the lowest in more than six months as euro-region woes boosted demand for the safest assets. They were two basis points lower at 0.93 percent, after reaching 0.895 percent, the weakest since Nov. 10. Ten- year gilt yields declined two basis points to 3.32 percent.

“The main driving force for gilts is risk appetite,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Ltd. in Edinburgh. “On a weekly forecast, gilts could rally further if risk appetite worsens.”

Money markets price in a 25 basis-point increase in the key rate in February, according to sterling overnight interbank average forwards, Tullett Prebon Plc data show. As recently as February investors bet the rate would be lifted this month.

Short-sterling futures were little changed, with the implied yield on the contract expiring in December at 1.03 percent.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net.

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

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