Pound Snaps 3-Day Drop Versus Dollar on Bets Economy Will Grow
The pound snapped a three-day decline against the dollar, rising from the lowest level in four weeks, as bets the U.K. economy returned to growth in the last quarter boosted demand British assets.
Sterling was little changed versus the euro as Prime Minister David Cameron said that Britain faces a choice between increasing its productivity or falling behind other countries. The U.K. economy expanded at its fastest pace in five years in the third quarter, the National Institute of Economic and Social Research said yesterday. Gilts fell after Bank of England Governor Mervyn King said yesterday inflation targeting should remain at the heart of monetary policy.
“The U.K. looks in slightly better shape than the euro zone,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The Niesr numbers yesterday suggest fairly solid growth in the third quarter, which has provided some interest” in the pound, he said.
The U.K. currency gained less than 0.1 percent to $1.6013 as of 4:39 p.m. London time, after dropping to $1.5977, matching the lowest since Sept. 10. The pound traded at 80.48 pence per euro, after reaching 81 pence yesterday, the weakest level since Sept. 17.
U.K. gross domestic product rose 0.8 percent, compared with a revised 0.1 percent in the quarter through August, Niesr, whose clients include the Bank of England, said. That’s the fastest expansion for a calendar quarter since the third quarter of 2007.
The U.K. economy is in its first double-dip recession since the 1970s, and has contracted for the past three quarters through June, according to data from the Office for National Statistics. The ONS will announce the third-quarter figure on Oct. 25.
Cameron focused the keynote address today to his Conservative Party’s annual conference on attempts to rebalance the economy away from a reliance on financial services and the public sector, pushing private-sector growth to emerge from a recession. He praised “doers” -- young, aspirational workers who want their own house or car.
“Unless we act, unless we take difficult, painful decisions, unless we show determination and imagination, Britain may not be in the future what it has been in the past,” the prime minister told activists in Birmingham, central England. “Because the truth is we are in a global race today, and that means an hour of reckoning for countries like ours.”
The pound has strengthened 0.5 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro fell 2.2 percent and the dollar weakened 0.5 percent.
The 10-year gilt yield rose four basis points, or 0.04 percentage point, to 1.77 percent. The 1.75 percent bond due September 2022 fell 0.355, or 3.55 pounds per 1,000-pound face amount, to 99.855.
“The case for price stability is as strong today as it was 20 years ago,” King said at the London School of Economics yesterday. While there are circumstances where it may be “justified to aim off” the central bank’s inflation target of 2 percent for a while, he said this wasn’t a call for a change to the bank’s remit.
Gilts returned 3.1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds also gained 3.1 percent and U.S. Treasuries rose 1.9 percent.