Pound Rises Third Week Versus Dollar on Growth Signs; Gilts Fall

The pound strengthened for a third week against the dollar as a report showed U.K. factory orders climbed to the highest level in almost two decades, spurring demand for Britain’s currency.

Sterling gained versus 11 of its 16 major counterparts before a government report next week that analysts said will confirm the U.K. economy grew at the fastest pace since 2010. The pound rallied even as Bank of England minutes showed officials said record-low interest rates may still be needed even after the jobless rate falls to 7 percent. U.K. government bonds declined as demand for fixed-income assets waned.

“We see any dip in the pound as an opportunity to buy,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Even though the Bank of England keeps reinforcing a message that interest rates may not go up as soon as the unemployment rate drops to 7 percent, some in the market still think it will raise rates before the Fed, the European Central Bank and Bank of Japan.”

The pound advanced 0.6 percent this week to $1.6208 as of 5:15 p.m. London time yesterday after gaining 1.2 percent during the previous two weeks. The U.K. currency appreciated 0.2 percent to 83.56 pence per euro after climbing to 83.17 pence yesterday, the strongest level since Nov. 7.

Sterling has gained 3.1 percent in the past three months, the best performer after New Zealand’s dollar out of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 0.3 percent, while the U.S. dollar fell 1.3 percent.

Manufacturing Expands

The Confederation of British Industry’s manufacturing gauge climbed to 11 in November, the highest since March 1995, from minus 4 in October, it said on Nov. 21. Gross domestic product rose 0.8 percent after growing 0.7 percent in the previous three months, according to a Bloomberg survey before the data is released on Nov. 27.

U.K. policy makers said there were “uncertainties over the durability” of the recovery, according to minutes of this month’s meeting released Nov. 20.

“The projections for growth under constant bank rate underlined there could be a case for not raising bank rate immediately when the 7 percent unemployment threshold was reached,” the Nov. 6-7 minutes showed.

The benchmark 10-year gilt yield rose five basis points, or 0.05 percentage point, this week to 2.79 percent. The 2.25 percent bond due in September 2023 dropped 0.375, or 3.75 pounds per 1,000-pound face amount, to 95.395.

Gilts lost 3.5 percent this year through Nov. 21, according to Bloomberg World Bond Indexes. German bonds dropped 1.3 percent and U.S. Treasuries declined 2.6 percent.

The Debt Management Office is scheduled to sell 2.5 billion pounds of gilts maturing in January 2044 on Nov. 28. The U.K. last sold the securities on Sept. 10 at an average yield of 3.743 percent.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

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

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