Pound Advances Versus Euro as U.K. Economic Sentiment Improves

The pound strengthened against the euro after a U.K. business lobby said company sentiment has improved, increasing speculation the economy will outperform that of the single-currency region.

Sterling rose versus 11 of its 16 major counterparts as the Confederation of British Industry maintained its forecast for growth to quicken over the next two years. A U.K. industry report last week showed the economy expanded in the three months through April, while analysts predict data tomorrow will show euro-area gross domestic product shrank in the first quarter. U.K. government bonds were little changed before the Debt Management Office sells five-year securities tomorrow.

“The trend of economic releases shows more optimism about the U.K. than about the euro zone and that should be reflected in sterling,” said Steve Barrow, head of Group-of-10 research at Standard Bank Plc in London. “GDP data in the euro zone is expected to be negative. I’m expecting the pound to move through the 84 pence area, probably this week.”

The pound gained 0.1 percent to 84.47 pence per euro at 1:44 p.m. London time after appreciating to 83.98 pence on April 26, the strongest level since Jan. 24. Sterling was little changed at $1.5354.

The CBI’s quarterly forecasts showed the economy will grow 1 percent this year and 2 percent in 2014, the same as it estimated in February. Britain’s GDP expanded 0.8 percent in the three months through April, the National Institute of Economic and Social Research said May 9.

‘More Confidence’

“In the conversations I have with business leaders, I’ve been hearing that whilst firms are on a cautious footing, there’s a bit more confidence about the economic outlook,” CBI Director-General John Cridland said at a press conference in London. “The right way to judge the economy is that it’s moving from flat to growth.”

The euro-area economy shrank 0.1 percent last quarter, according to a Bloomberg News survey before the report is released on May 15.

Futures traders increased bets the pound will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain was 63,086 on May 7, compared with so-called net shorts of 58,607 a week earlier.

The pound has strengthened 2.2 percent in the past month, the second-best performer after the Canadian dollar of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. currency rose 2.1 percent and the euro gained 0.9 percent.

The 10-year gilt yield was little changed at 1.89 percent after rising 12 basis points, or 0.12 percentage point, during the previous two trading days. The price of the 1.75 percent bond due in September 2022 was 98.815.

The Debt Management Office will sell 4.75 billion pounds of five-year gilts tomorrow and 2.5 billion pounds of 30-year securities on May 16.

U.K. gilts handed investors a loss of 1.7 percent this month through May 10, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds fell 1 percent and Treasuries dropped 0.9 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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