Pound Climbs a Second Week Versus Dollar as Data Beats Estimates

The pound strengthened for a second week against the dollar as economic reports that exceeded analyst estimates boosted confidence that growth is accelerating.

Sterling climbed to an 11-week high versus the greenback as reports from U.K. business confidence to manufacturing, construction and services output beat forecasts. Benchmark 10- year gilts fell for a second week as demand for the safest assets waned and investors sought higher-yielding assets. The U.K. auctioned 50-year index-linked debt at a negative yield for the first time on April 30.

“The data hasn’t been exactly good but the expectations have been so deflated that the hurdle for upside surprises is very low,” said Adam Cole, head of Group-of-10 currency strategy at Royal Bank of Canada in London. “We’re still positive on sterling.”

The pound advanced 0.6 percent in the week to $1.5566 at 5:11 p.m. London time yesterday after touching $1.5606 on May 1, the most since Feb. 13. Sterling was little changed at 84.25 pence per euro.

Sterling has appreciated 2.6 percent in the past month, according to Bloomberg Correlation-Weighted Indexes. That’s the best performance among the 10 developed-market currencies tracked by the gauge and comes after the nation avoided an unprecedented triple-dip recession in the first quarter. Even so, it has weakened 2.7 percent this year. The euro rose 1.5 percent in the month, while the dollar dropped 0.6 percent.

Economic Confidence

A gauge of services rose to 52.9 last month, according to data yesterday. The median estimate of 27 analysts in a Bloomberg survey was for the measure to stay unchanged at 52.4. U.K. manufacturing shrank at a slower pace in April and a Hometrack Ltd. report showed average house prices in England and Wales matched the biggest increase in three years on April 29.

The 10-year gilt yield posted a weekly gain of five basis points, or 0.05 percentage point, to 1.73 percent, after increasing two basis points in the previous week. The 1.75 percent security due September 2022 fell 0.4, or 4 pounds per 1,000-pound face amount, to 100.21.

The U.K. sold 500 million pounds of 2062 securities on April 30 at a so-called mini tender with a real yield of minus 0.213 percent, the lowest ever for a 50-year inflation-protected bond. The 30-year break-even rate, a gauge of expectations for retail prices over the next three decades, ended the week at 3.35 percentage points, within 15 basis points of the highest since August 2011.

The Bank of England Monetary Policy Committee will leave stimulus unchanged when meets on May 8-9, according to Bloomberg surveys.

Governor Mervyn King has wanted to expand the Bank of England’s 375 billion-pound asset-purchase target for three consecutive months and was outvoted at April’s meeting by six policy makers who saw risks to inflation expectations as weighing against further monetary easing, minutes showed.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

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

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