The pound rose to the strongest level in seven weeks versus the euro amid speculation Bank of England minutes tomorrow will show policy makers are moving closer to raising borrowing costs.
Sterling approached the highest in more than four years against the dollar amid signs Britain’s economy will continue to expand at a faster pace than that of the 18-nation currency bloc. Standard Bank Plc recommended investors buy the pound versus the Swiss franc and the New Zealand dollar. U.K. government bonds declined for a third day, with the yield on two-year gilts climbing to the most since July 2011.
“The pound will trade higher versus the euro over time,” said Gavin Friend, a foreign-exchange strategist at National Australia Bank Ltd. in London. “The strength of the U.K. data is driving this. We think we’re on for something like 0.9 percent growth in the first quarter, well above the U.K.’s peer countries and that will just keep the pound supported.”
The pound rose 0.2 percent to 82 pence per euro at 4:42 p.m. London time after advancing to 81.98 pence, the strongest level since Feb. 28. Sterling climbed 0.2 percent to $1.6821 after rising to $1.6842 on April 17, the highest since November 2009.
The U.K. currency will appreciate to 80 pence per euro by the end of June, Friend said, citing National Australia Bank forecasts.
The Bank of England, led by Governor Mark Carney, maintained the official bank rate at a record-low 0.5 percent on April 10. Policy makers met amid signs the recovery is strengthening, with data this month showing industrial production rose more in February than economists predicted.
A report last week showed the unemployment rate fell to 6.9 percent, the lowest in more than four years. Carney previously said 7 percent unemployment would be a threshold for considering an interest rate increase.
“Last week the release of unemployment data showed that the economy is growing at a rapid pace,” analysts at Commerzbank AG, including Peter Kinsella, wrote in a note to clients. “Investors will be looking for any signs that the MPC will change their stance regarding the level of spare capacity in the economy. We are of the view that EUR-GBP remains a sell on rallies,” he said, referring to the euro-pound exchange rate.
The International Monetary Fund raised its forecast for the U.K.’s economic growth on April 8 for the second time this year, predicting Britain will have the fastest expansion among developed nations. Growth will be 2.9 percent in 2014 and 2.5 percent next year, the Washington-based IMF said.
The European Central Bank last month predicted the euro-area economy will expand 1.2 percent this year, 1.5 percent in 2015 and 1.8 percent in 2016.
A report next week is forecast by analysts to show the U.K. economy expanded 0.7 percent in the first quarter, matching the fourth-quarter reading.
“Our indicators for the pound have become more positive in recent days,” Standard Bank’s London-based head of group-of-10 research Steve Barrow wrote in an e-mailed note.
The pound gained as Swiss-based Novartis AG said it has agreed to buy the U.K.’s GlaxoSmithKline Plc’s cancer drugs for as much as $16 billion.
The pound strengthened 5.5 percent in the past six months, the best performer among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 1.5 percent and the dollar gained 1.4 percent.
Benchmark 10-year gilt yields increased five basis points, or 0.05 percentage point, to 2.72 percent. The 2.25 percent bond maturing in September 2023 fell 0.415, or 4.15 pounds per 1,000-pound face amount, to 96.14.
Yields on two-year gilts rose as much as four basis points to 0.75 percent, the highest since July 22, 2011.
Gilts were closed yesterday and April 18, along with euro-area government bond markets, for Easter holidays.
U.K. bonds returned 2.8 percent this year through April 17, according to Bloomberg World Bond Indexes. German securities earned 2.9 percent in the same period, while U.S. Treasuries, which were open for trading yesterday, gained 2 percent since Dec. 31.
To contact the reporter on this story: Neal Armstrong in London at email@example.com