Pound Heads for Second Weekly Gain Versus Dollar as GDP Quickens

The pound headed for a second weekly advance versus the dollar after a government report showed U.K. economic growth accelerated to the fastest pace in more than three years in the third quarter.

Sterling was poised for a gain this week versus most of its 16 major counterparts after Bank of England Governor Mark Carney said yesterday the central bank will widen access to money-market operations. Citigroup Inc. is betting the U.K. currency will extend gains versus the dollar, the company said in a research note. U.K. government bonds were little changed.

“I would still be a buyer but not as aggressively as a few months ago when the data was unequivocally good,” Steve Barrow, head of Group-of-10 research at Standard Bank Plc in London, said about the pound. “The U.K. GDP data was in line but the breakdown is reasonably good.”

The pound was little changed at $1.6185 at 2:30 p.m. London time, having appreciated 0.1 percent this week. It advanced to $1.6257 on Oct. 23, the highest level since Oct. 1. The U.K. currency traded at 85.23 pence per euro after depreciating to 85.55 pence yesterday, the weakest level since Aug. 29.

Gross domestic product increased 0.8 percent, up from 0.7 percent growth between April and June and the most since the second quarter of 2010, the Office for National Statistics said in London. Reports earlier this week showed U.K. house prices rose this month and the budget deficit narrowed more in September than economists forecast.

Carney Speech

The Bank of England will expand the range of collateral it accepts in its facilities and offer money for longer periods on cheaper terms, Carney said in a speech in London yesterday evening. Officials will also consider making some liquidity tools available to a wider array of institutions, he said.

The pound strengthened 3.2 percent in the past three months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 1.8 percent, while the dollar fell 2.5 percent.

Citigroup has used options in its trade ideas portfolio to bet the pound will appreciate against the dollar as the U.K. economy is likely to outperform those of Europe and the U.S., Josh O’Byrne, a currency strategist in London, wrote in a research note.

“Further strengthening in the domestic recovery could push investors to more significantly buy into the pound story,” he wrote. “Citi economists expect GDP to hit 3 percent next year, pushing unemployment lower more quickly.”

The benchmark 10-year gilt yield was at 2.63 percent after falling to 2.59 percent on Oct. 23, the lowest since Aug. 27. The price of the 2.25 percent bond maturing in September 2023 was 96.725.

Gilts lost 2.4 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries fell 1.9 percent and German securities slid 1.5 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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