Pound Climbs Versus Euro After ECB Rate Cut; U.K. Gilts Decline

The pound climbed against the euro for a second week, rising the most since April, after the European Central Bank unexpectedly lowered its benchmark interest rate, boosting demand for the U.K. currency.

Sterling posted its first weekly advance in three versus the dollar as reports showed British services growth unexpectedly accelerated in October to the fastest pace in 16 years and a gauge of house prices jumped to a record. U.K. government bonds declined for a second week as the Bank of England kept its key interest rate at a record low and maintained its bond-buying stimulus target.

“The move in the pound is more euro-specific because the downtrend in the euro has accelerated,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The data in the U.K. continues to surprise to the upside and that’s supportive for the pound.”

The pound gained 1.4 percent to 83.52 pence per euro at 4:53 p.m. London time yesterday, the biggest advance since the period ended April 26. It touched 83.01 pence on Nov. 7, the strongest level since Jan. 17. Sterling climbed 0.4 percent to $1.5995.

The ECB cut its main refinancing rate to 0.25 percent on Nov. 7 after a drop in inflation to the slowest pace in four years threatened its mission to keep prices stable. The Bank of England left its asset-purchase target at 375 billion pounds and the benchmark interest rate at a record-low 0.5 percent on the same day. The London-based central bank has said it will keep the rate low until unemployment, currently at 7.7 percent, falls below 7 percent.

Advance Pared

The pound pared its weekly advance against the dollar yesterday after a U.S. report showed payrolls increased last month more than economists forecast.

A U.K. services industry gauge rose to 62.5 from 60.3 in September, the highest since May 1997, Markit Economics said on Nov. 5 in London. The median estimate in a Bloomberg survey of economists was for a reading of 60. House values in the U.K. increased 0.6 percent from September to an average 237,161 pounds, London-based real-estate researcher Acadametrics and LSL Property Services Plc (LSL) said yesterday.

Sterling has rallied 5 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro climbed 3.5 percent and the dollar rose 1.7 percent.

The 10-year gilt yield climbed 12 basis points, or 0.12 percentage point, this week to 2.77 percent. The 2.25 percent bond due September 2023 fell 1.0, or 10 pounds per 1,000-pound face amount, to 95.58.

Inflation Rate

U.K. inflation slowed to 2.5 percent last month from 2.7 percent in September, the Office for National Statistics will say Nov. 12, according to the median estimate of analysts in a Bloomberg News survey. Bank of England Governor Mark Carney will present economic projections at his second quarterly inflation report on Nov. 13, with Goldman Sachs Group Inc. among those forecasting the central bank will improve its outlook.

U.K. gilts lost 2.7 percent this year through Nov. 7, according to Bloomberg World Bond Indexes. German bonds dropped 1 percent and U.S. Treasuries declined 2 percent.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; 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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