The pound strengthened the most in three weeks versus the euro as optimism Britain’s economic growth is gathering pace boosted demand for the nation’s assets.
Sterling gained for a second day against the common currency as Bank of England Governor Mark Carney told the Nottingham Post that the U.K. couldn’t devalue its way to prosperity. Analysts say reports tomorrow will show consumer confidence improved in August and mortgage approvals increased in July. Britain’s currency weakened versus the dollar after a report showed the U.S. economy expanded more in the second quarter than analysts forecast. Gilts advanced.
“The market continues to look past the forward guidance at the bigger picture of a rapidly improving U.K. growth profile,” Alvin Tan, a director of foreign-exchange strategies at Societe Generale SA in London, wrote in a note to clients. Tan said he expects the pound to extend its gain versus the common currency.
The pound strengthened 0.7 percent to 85.36 pence per euro at 4:29 p.m. London time, the biggest gain since Aug. 7. It advanced 0.3 percent yesterday after sliding to 86.52 pence, the weakest level since Aug. 7. The U.K. currency declined 0.2 percent to $1.5494.
Sterling has strengthened at least 0.6 percent against all 16 of its major peers this month as Citigroup Inc.’s Economic Surprise Index for the U.K. rose to the highest level since November, indicating data has beaten analysts’ estimates.
Gross domestic product increased 0.7 percent in the second quarter, a report showed on Aug. 23, exceeding an initial estimate of 0.6 percent.
GfK NOP Ltd. will say tomorrow its U.K. consumer sentiment index rose 2 points to minus 14 this month, the highest since February 2010, according to the median forecast of 19 economists in a Bloomberg News survey. A separate report from the Bank of England will show mortgage approvals increased to 58,800 in July from 57,700 a month earlier, according to another survey.
A gauge of commercial business optimism rose to 54 in August from 41 the previous month, according to a survey of about 200 companies by Lloyds Banking Group Plc.
Sterling rallied from a three-week low versus the euro yesterday after Carney failed to convince investors that the central bank would keep interest rates at an all-time low. He said in a speech that the central bank would keep down borrowing costs and will move to boost the lending capacity of the nation’s largest banks.
“We’re seeing a bit of a hangover from Carney’s speech yesterday, which was dovish but without the intensification of dovishness the market expected,” said Daragh Maher, a foreign-exchange strategist at HSBC Holdings Plc in London. “We saw a bit of a recovery in sterling.”
U.S. GDP expanded at a 2.5 percent annualized rate, up from an initial estimate of 1.7 percent, Commerce Department figures showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg projected a 2.2 percent gain.
The pound has strengthened 5.5 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 4.4 percent and the dollar climbed 3 percent.
The benchmark 10-year gilt yield fell two basis points, or 0.02 percentage point, to 2.78 percent. The 2.25 percent security due in September 2023 rose 0.185, or 1.85 pounds per 1,000-pound face amount, to 95.375.
Gilts lost 3.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 2.3 percent and Treasuries declined 3.3 percent.