The pound strengthened toward an eight-month high against the dollar after a gauge of U.K. retail sales unexpectedly increased in September, adding to signs the U.K. economy is improving.
Sterling rose versus all of its 16 major counterparts before a report tomorrow that analysts said will confirm the U.K. economy expanded last quarter. The pound has been the best performer in the past six months, appreciating 5.8 percent against the dollar. U.K. government bonds rose after Bank of England policy maker David Miles said it would be misguided to expect an early interest-rate increase.
“Retail sales are a massive part of the recovery so the number was in focus,” said Eimear Daly, a London-based currency-market analyst at Monex Europe Ltd. “That’s why it had such a big impact on the pound. In the short term, it looks like there is more momentum behind sterling-dollar however I would be cautious holding the pound as we head into the fourth quarter.”
The pound advanced 0.4 percent to $1.6070 at 4:33 p.m. London time after rising to $1.6163 on Sept. 18, the highest level since Jan. 11. The U.K. currency was little changed at 84.22 pence per euro after appreciating to 83.53 pence on Sept. 18, the strongest since Jan. 17.
A gauge of annual retail sales growth rose to 34, the most since June 2012, from 27 in August, the Confederation of British Industry said. Economists surveyed by Bloomberg forecast a drop to 23. Gross domestic product expanded 0.7 percent in the second quarter, a separate survey showed before the Office for National Statistics releases the data tomorrow.
The pound has risen 1.4 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar strengthened 2.7 percent and the euro gained 5.7 percent.
Ten-year gilts rose for a third day after Miles wrote in the Evening Standard newspaper that sustained growth was needed to remove slack from the economy and it’s mistaken to think an early increase in interest rates is needed.
The Bank of England led by Governor Mark Carney introduced interest-rate guidance last month, pledging to keep borrowing costs low until the unemployment rate falls to 7 percent. It was 7.7 percent in the three months through July.
The benchmark 10-year gilt yield fell four basis points, or 0.04 percentage point, to 2.76 percent after declining to 2.75 percent, the lowest level since Aug. 30. The 2.25 percent bond due in September 2023 rose 0.33, or 3.30 pounds per 1,000-pound face amount, to 95.635.
The 10-year yield dropped 12 basis points yesterday, the most since August, as Bank of England Deputy Governor Paul Tucker said the central bank was in “no rush” to withdraw monetary stimulus.
“It’s dawning on people that central banks are still very nervous about the recovery,” said John Wraith, a fixed-income strategist at Bank of America Corp. in London. “The market is paring back on the extent it was disagreeing with the Bank of England’s forecasts.”
Gilts lost 3.7 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bunds dropped 1.9 percent and Treasuries fell 2.5 percent.