Pound Approaches Eight-Month High Versus Dollar on Growth Signs

The pound climbed toward an eight-month high against the dollar before reports this week that economists said will show gross domestic product, house prices and consumer confidence all improved.

Sterling has appreciated at least 1 percent versus all 16 of its major counterparts in the past six months amid signs Britain’s economy is gaining momentum. The pound has climbed for the last three weeks against the U.S. currency as the Federal Reserve maintained stimulus measures that have debased the dollar. U.K. gilts rose before the government sells inflation-linked bonds through banks this week.

“Expectations for U.K. GDP are running high,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “There is improving data ahead, and growing confidence in the U.K. both domestically and overseas. I doubt this trade is over.”

The pound advanced 0.2 percent to $1.6036 at 4:15 p.m. London time after climbing to $1.6163 on Sept. 18, the highest level since Jan. 11. The U.K. currency gained 0.4 percent to 84.13 pence per euro after appreciating to 83.53 pence on Sept. 18, the strongest since Jan. 17.

Sterling has risen 5.6 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 4 percent, while the dollar weakened 0.3 percent.

Economic Expansion

U.K. GDP expanded 0.7 percent in the second quarter, according to a Bloomberg News survey of economists before the data from the Office for National Statistics on Sept. 26. Industry reports the following day are forecast to show consumer confidence and house prices climbed this month.

Homes approved for construction in the U.K. rose 49 percent in the three months through June 30, the Home Builders Federation said today. Approvals climbed to 37,000 from the same period a year earlier, the Federation said.

Futures traders decreased 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 -- so-called net shorts -- was 6,310 on Sept. 17, compared with 38,166 a week earlier.

The yield on the benchmark 10-year gilt fell two basis points, or 0.02 percentage point, to 2.90 percent after climbing to 3.05 percent on Sept. 11, the highest level since July 2011. The 2.25 percent bond due in September 2023 rose 0.155, or 1.55 pounds per 1,000-pound face amount, to 94.35.

Highest Yield

Investors are demanding the highest yield on 10-year gilts relative to Treasuries in seven months as they accumulate bets the Bank of England will start raising interest rates before the Federal Reserve. U.K. bond yields rose last week after minutes published Sept. 18 showed policy makers agreed that the economy no longer needs more stimulus.

Treasury 10-year yields were at 2.70 percent today. U.S. rates exceeded those on gilts as recently as Sept. 4 based on closing prices.

The U.K. will sell inflation-linked securities due in March 2068 this week. The Debt Management Office has hired Barclays Plc, Deutsche Bank AG, HSBC Holdings Plc and Morgan Stanley to manage the deal.

Prospects for the inflation-linked bonds “appear positive,” Sam Hill, a fixed-income strategist at Royal Bank of Canada in London, wrote last week in a note to clients. “Expectations for an ongoing bear market in fixed income have been rocked by the Fed’s latest dovish twist.”

U.K. gilts lost 4.5 percent this year through Sept. 20, according to Bloomberg World Bond Indexes. German securities dropped 2.4 percent and Treasuries fell 3 percent.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

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

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