Pound Gains Versus Euro as Output Climbs, BOE Maintains Policy

The pound strengthened the most in a week against the euro as U.K. industrial production expanded in March and the Bank of England refrained from adding stimulus measures that tend to debase a currency.

Sterling gained for the first time in three days versus the shared currency as the Bank of England maintained its asset-purchase target, known as quantitative easing, at 375 billion pounds ($581 billion) and kept interest rates at a record low. The central bank is due to release its latest economic analysis and inflation projections on May 15. The pound fell against the dollar after the number of Americans filing claims for jobless benefits unexpectedly dropped.

“Industrial production was better than expected and that caused a bit of a bounce higher” in the pound, said Kathleen Brooks, research director in London at Forex.com, a unit of online currency-trading company Gain Capital Holdings Inc. (GCAP) “Much more important for the pound is going to be next week’s inflation report.”

The pound appreciated 0.2 percent to 84.49 pence per euro at 4:44 p.m. London time after climbing as much as 0.4 percent, the most since May 2. Sterling slipped 0.2 percent to $1.5505 after rising to $1.5588. It reached $1.5606 on May 1, the highest level since Feb. 13.

The pound faces “tough resistance” at $1.56, Forex.com’s Brooks said. In technical analysis, resistance refers to an area on a price graph where sell orders may be clustered.

Manufacturing Data

Industrial output increased 0.7 percent from February, when it gained a revised 0.9 percent, the Office for National Statistics said in London. The median forecast of 31 economists in a Bloomberg News survey was for a gain of 0.2 percent. Data also showed that manufacturing rose 1.1 percent in March, exceeding analysts’ predictions for an increase of 0.3 percent.

The U.K. economy expanded 0.8 percent in the quarter through April, the National Institute of Economic and Social Research in London said.

The Bank of England’s decision to keep the main interest rate at 0.5 percent was predicted by all 52 economists in a Bloomberg survey.

“Sterling remained bid after the BOE left rates and its asset-purchases program unchanged and after the industrial production and manufacturing data for March surprised on the upside,” Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London, wrote in a note to clients. “Today’s releases add conviction to the view that QE is unlikely to come any time soon.”

Unemployment Insurance

The pound may strengthen to 0.84 pence per euro, while sterling may be an “interesting buy” against the yen in the very near term, Marinov said.

Applications for unemployment insurance payments in the U.S. decreased by 4,000 to 323,000 in the week ended May 4, the least since January 2008, Labor Department figures showed today. Economists forecast 335,000 claims, according to the median estimate in a Bloomberg survey. For the first time, the average over the past month was the lowest since before the last recession began.

The pound has strengthened 1.8 percent in the past month, the second-best performer after the Canadian dollar among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The so-called loonie rose 2 percent, the dollar added 0.5 percent and the euro gained 0.6 percent.

The 10-year gilt yield was at 1.78 percent after rising to 1.81 percent on May 7, the highest since March 26. The price of the 1.75 percent securities due in September 2022 was at 99.72.

Gilts returned 1.1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 0.7 percent and Treasuries earned 0.4 percent.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.