Pound Approaches One-Month High Against Euro Amid Growth Signs

The pound approached the strongest level in a month against the euro after an industry report showed British banks boosted mortgage approvals in June, adding to evidence the recovery is gathering pace.

The U.K. currency advanced for a second day against the common currency before a government report tomorrow that economists said will show consumer-price inflation stayed above the Bank of England’s 2 percent target. The central bank will release the minutes of this month’s policy meeting on Wednesday. U.K. government bonds were little changed.

“Economic data is pointing in the right direction,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “The U.K. recovery will outperform the euro zone. I expect to see more demand for the pound than I do for the euro in the weeks and months to come.”

The pound appreciated 0.1 percent to 86.01 pence per euro at 4:42 p.m. London time after advancing to 85.79 on Aug. 7, the strongest level since July 10. The U.K. currency weakened 0.1 percent to $1.5476.

Sterling has gained 0.5 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro weakened 0.2 percent, and the dollar slipped 2.2 percent.

The number of U.K. home loans increased 15.7 percent in June from a year earlier, the Council of Mortgage Lenders said in an e-mailed report. Mortgages climbed 1.1 percent to 55,400 from the previous month, the Council said.

Consumer Prices

British consumer prices rose 2.8 percent last month from a year earlier, after advancing 2.9 percent in June, according to a Bloomberg survey before the Office for National Statistics releases the data tomorrow. The number of Britons claiming jobless benefits fell for a ninth month in July, a separate Bloomberg survey showed before the report on Wednesday.

The benchmark 10-year gilt yield was at 2.47 percent after increasing to 2.56 percent on Aug. 7, the highest level since June 25. The price of the 1.75 percent bond maturing in September 2022 was 94.19.

“The underlying trend of economic recovery is seen very much in place, that’s going to be a negative for gilts this week,” said Jason Simpson, a U.K. rates strategist at Banco Santander SA in London. Investors will watch the jobs data and the minutes of the bank’s latest policy meeting “for any sign of dissent, hints that some members were unhappy about tying down interest rates for such an extended period.”

Pound Bears

Sterling’s advance to a seven-week high last week after Bank of England Governor Mark Carney reiterated his commitment to curb inflation is failing to convince companies from Standard Chartered Plc to Nomura Holdings Inc. that the pound is on the cusp of a sustained rally against the dollar.

The U.K. currency will weaken to $1.41 by year-end, according to four of the most-pessimistic forecasters in a Bloomberg survey. The pound strengthened to $1.5574 on Aug. 8, the highest level since June 19. The central bank released its Inflation Report on Aug. 7.

“People are very excited about an uptick in U.K. growth that’s at a very early stage, but in the global context growth is very, very lagging,” Ned Rumpeltin, head of Group of 10 currency strategy at Standard Chartered in London, said in an Aug. 8 telephone interview. “The natural center of gravity for the pound against the dollar is lower.”

The Bank of England said last week it planned to keep the benchmark rate at 0.5 percent until the jobless rate falls to 7 percent, something it doesn’t forecast will happen before the fourth quarter of 2016. Unemployment based on an International Labour Organization measure was 7.8 percent in the second quarter, according to a Bloomberg survey before the data is released on Aug. 14.

The Debt Management Office said it may hold at least one bond sale through banks in the third quarter, according to a statement on its website. The DMO, which manages debt sales for the Treasury, said it would be seeking investor views on the type of security and potential timing of such a transaction. It will also use its Aug. 19 meeting with investors to gauge demand for super-long bonds, according to the statement.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Morgane Lapeyre in London at mlapeyre@bloomberg.net

To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net

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