The pound climbed to the strongest level in a year against the euro after the International Monetary Fund boosted its growth forecast for the U.K. by more than any other Group-of-Seven nation.
The U.K. currency rose versus all its 16 major counterparts before a report tomorrow that economists said will show the jobless rate dropped toward the Bank of England’s threshold for considering increasing interest rates. The central bank will also release minutes of its January meeting. U.K. government bonds fell before the Debt Management Office sells 3.25 billion pounds ($5.35 billion) of 10-year gilts on Thursday.
“The IMF is very bullish on the U.K.,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “There’s also an expectation for further strong U.K. employment data ahead. I expect the pound to strengthen to 75 pence per euro this year, and to move toward $1.70.”
The pound gained 0.2 percent to 82.31 pence per euro at 4:28 p.m. London time after appreciating to 82.15 pence, the strongest level since January 2013. The U.K. currency rose 0.3 percent to $1.6471 after advancing to $1.6603 on Jan. 2, the highest since August 2011.
Sterling has gained 8.7 percent in the past year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 6.1 percent and the dollar gained 4 percent.
Britain’s economy will expand 2.4 percent this year and 2.2 percent in 2015, the IMF said in its World Economic Outlook update published today, compared with October growth forecasts of 1.9 percent and 2 percent.
The jobless rate fell to 7.3 percent in the three months through November, from 7.4 percent in the quarter through October, according to a Bloomberg survey. Bank of England Governor Mark Carney said in August policy makers wouldn’t consider raising borrowing costs at least until unemployment dropped to 7 percent. The central bank left its benchmark interest rate at a record-low 0.5 percent on Jan. 9.
The 10-year gilt yield climbed one basis point, or 0.01 percentage point, to 2.84 percent after dropping to 2.80 percent on Jan. 17, the lowest level since Dec. 2. The 2.25 percent bond due in September 2023 fell 0.055, or 55 pence per 1,000-pound face amount, to 95.10.
The U.K. sold bonds due in March 2025 on Dec. 3 at an average yield of 2.977 percent and last auctioned the current benchmark 2023 securities at 2.732 percent on Nov. 19.
“The big things this week are obviously going to be the minutes and the labor-market statistics,” said Jason Simpson, a fixed-income strategist at Banco Santander SA in London. “Plus we have 10-year supply on Thursday, so I think the rally has reached the extent of how far it’s going to go and I’d expect gilt yields to back-up from here.”
U.K. gilts lost 1.7 percent in the 12 months through yesterday, according to Bloomberg World Bond Indexes. Treasuries fell 2.2 percent, while German securities returned 0.2 percent.