Pound Rises Versus Euro for Second Week on Waning Stimulus Bets

The pound strengthened against the euro for a second week, touching a one-month high, as signs of improvement in the U.K. economy damped expectations for more monetary stimulus.

Sterling fell for the fifth week in six against the dollar after a report yesterday showed the U.S. economy added more jobs than expected last month. The Bank of England’s Monetary Policy Committee meets on Nov. 7-8 to decide whether to extend its asset-purchase program, known as quantitative easing, beyond 375 billion pounds ($601 billion). Gilts were little changed after a report yesterday showed the construction industry unexpectedly expanded last month.

“We’ve had more supportive news for the U.K. economy from the U.K. construction survey,” said Audrey Childe-Freeman, head of foreign-exchange strategy at Bank of Montreal (BMO) in London. “Sterling should continue to benefit against the euro as long as we see the economy hanging on. The market is not now expecting more QE next week and that should come as a relief for sterling.”

The pound rose 0.3 percent in the week to 80.12 pence per euro at 5 p.m. London time yesterday, when it advanced to 79.97 pence, the most since Oct. 3. Sterling fell 0.5 percent to $1.6031.

QE Bets

A gauge of construction activity rose to 50.9 last month from 49.5 in September. That compares with the median forecast of economists in a Bloomberg survey of 49. A reading above 50 indicates growth.

The U.K. pulled out of recession in the third quarter, when gross domestic product expanded 1 percent, the fastest growth since 2007.

The Confederation of British Industry revised upwards its forecast for growth, saying the economy will stagnate this year and expand 1.4 percent in 2013. In August, it predicted a 0.3 percent contraction and a 1.3 percent expansion, respectively.

Royal Bank of Scotland Group Plc, Barclays Plc, Citigroup Inc. and JPMorgan Chase & Co. all subsequently abandoned previous forecasts for the Bank of England to increase stimulus next week.

A gauge of services growth due on Nov. 5 was at 52 in October, from 52.2 a month earlier, according to the median forecast of 22 economists surveyed by Bloomberg News.

The pound has advanced 0.9 percent in the past three months according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro gained 3.2 percent and the dollar dropped 2.7 percent.

Ten-year gilts yielded 1.86 percent from 1.87 percent on Oct. 26. The 1.75 percent security maturing in September 2022 added 0.11, or 1.1 pounds per 1,000-pound face amount, to 99.06.

Gilts returned 2.4 percent this year through Nov. 1, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 3.4 percent percent and Treasuries earned 1.9 percent.

To contact the reporter on this story: Neal Armstrong in London at narmstrong8@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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