Pound Gains as U.S. Growth Stalls, U.K. Confidence Climbs

The pound rose to a four-year high against the dollar after data showed U.S economic growth stagnated while U.K. consumer confidence climbed, boosting the relative appeal of sterling.

The pound had its first monthly gain in three versus the euro amid signs Britain’s recovery will spur the Bank of England to raise borrowing costs sooner than it forecast. U.S. gross domestic product grew 0.1 percent in the first quarter, chilled by harsh winter weather. U.K. 10-year yields were at the highest in almost 16 years relative to similar-maturity German bunds as monetary policy diverges, with the threat of deflation fueling speculation the European Central Bank will boost stimulus.

“We’re very positive on sterling given the economic backdrop in the U.K.,” said Phyllis Papadavid, a senior global-currency strategist at BNP Paribas Corporate & Investment Banking in London. U.S. GDP “was a disappointment but it’s important to recognize that it is impacted by the weather and so far we’ve had positive indications on the U.S. for the second quarter.”

The pound rose 0.3 percent to $1.6885 at 4:58 p.m. London time after reaching $1.6901, the highest since August 2009. It gained 1.3 percent in April. Sterling was little changed at 82.15 pence per euro, appreciating 0.6 percent this month.

U.S. GDP barely grew on an annualized rate from January through March, compared with a 2.6 percent gain in the prior quarter, figures from the Commerce Department showed today in Washington. The median forecast of economists surveyed by Bloomberg called for a 1.2 percent increase.

Sterling Rally

An index of U.K. consumer sentiment compiled by GfK NOP Ltd. increased two points to minus three, the highest reading since June 2007. The median forecast of economists in a Bloomberg News survey was for a one-point increase to minus four.

“We don’t expect the momentum in the U.K. economy to change significantly, we think the U.K. will be a standout performer relative to the rest of the G10,” BNP Paribas’s Papadavid said referring to the Group of 10 nations. “Sterling has outperformed as a result of that.”

The pound has rallied 5.7 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 0.9 percent and the dollar was little changed.

Britain’s economy grew 0.8 percent in the first quarter, up from 0.7 percent in the final three months of 2013, the Office for National Statistics said yesterday. Central bank Governor Mark Carney said “the recovery is starting to broaden out” and described policy makers as “prudently optimistic,” according to a report on the Bristol Post’s website yesterday.

Gilt Yields

Benchmark 10-year gilt yields dropped two basis points, or 0.02 percentage point, to 2.67 percent with the price of the 2.25 percent bond maturing in September 2023 rising 0.165, or 1.65 pounds per 1,000-pound face amount, to 96.575. The yield has dropped seven basis points since March 31.

Similar-maturity German yields fell three basis points to 1.47 percent. The premium investors demand to hold the U.K. securities was at 119 basis points, the widest since August 1998, based on closing prices.

The euro region’s annualized consumer-price inflation rate increased to 0.7 percent this month from 0.5 percent in March, Eurostat in Luxembourg said today. Economists forecast the rate to accelerate to 0.8 percent. Inflation in the currency bloc has been below 1 percent for seven months, while the ECB seeks to keep it at just under 2 percent.

Gilts returned 2.9 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities earned 3 percent and U.S. Treasuries gained 2.2 percent.

To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net

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

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