The pound strengthened for a sixth day versus the euro, the longest run of gains since September, after a report showed U.K. unemployment dropped more in the three months through April than economists forecast.
Sterling has appreciated against its European peer and U.K. gilt yields have increased relative to German bunds amid speculation the Bank of England will hasten plans to raise interest rates, while the European Central Bank expands stimulus. U.K. government bonds were little changed after 10-year yields earlier reached the highest level in two months.
“The underlying message from U.K. Plc, aside from a few caveats, is that data remains robust across the board,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “It remains a pretty positive environment for sterling. Euro-sterling has been biased towards the 80 pence threshold for some time and the data continues to point us in that direction.”
The pound gained 0.3 percent to 80.59 pence per euro at 4:16 p.m. London time after reaching 80.54 pence, the strongest level since December 2012. Sterling rose 0.2 percent to $1.6788.
The U.K. jobless rate as measured by International Labour Organization methods dropped to 6.6 in the three months through April from 6.8 percent in the first quarter, the Office for National Statistics said in London today. The median estimate in a Bloomberg News survey of analysts was 6.7 percent.
Buoyed by a stronger economy, sterling has jumped 7.8 percent in the past 12 months, the best performer after New Zealand’s dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 1.5 percent, while the dollar slipped 0.3 percent.
More than half the 29 financial institutions surveyed by Bloomberg now see an increase in central bank rates by March. Forward contracts based on the sterling overnight interbank average, or Sonia, show investors are betting the benchmark rate will rise 25 basis points by next April.
The U.K.’s 10-year yield was at 2.71 percent after climbing to 2.76 percent, the highest since April 4. The price of the 2.25 percent gilt due September 2023 was 96.235.
The extra yield investors get for holding 10-year gilts instead of German bonds was at 132 basis points today, the widest since before the euro’s introduction in 1999, based on closing-price data compiled by Bloomberg.
Gilts returned 3 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries earned 2.6 percent and German securities gained 3.9 percent.