The pound climbed for a second day against the euro as a report showing German investor confidence fell to the lowest level since December 2012 boosted the allure of the U.K. currency as an alternative to its European peer.
U.K. government bonds were little changed before the Bank of England releases its quarterly Inflation Report tomorrow, which may offer clues on the timing of the institution’s first increase in borrowing costs since 2007. The pound earlier touched its lowest level in almost nine weeks versus the dollar after a report showed U.K. food sales tumbled the most in at least 5 1/2 years.
“We had a move in euro-sterling on the back of the German survey,” said Eimear Daly, the head of market analysis at London-based broker Monex Europe Ltd. “There is also positioning ahead of the Inflation Report tomorrow. People are hedging their bets we could get a clear signal from the Bank of England” regarding interest-rate increases, she said.
The pound strengthened 0.3 percent to 79.49 pence per euro at 4:34 p.m. London time after also adding 0.3 percent yesterday. Sterling was little changed at $1.6805 after touching $1.6757, the least since June 11.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, dropped to 8.6 in August from 27.1 in July. Economists forecast a decrease to 17, according to the median estimate in a Bloomberg News survey.
The 10-year gilt yield was at 2.48 percent after touching 2.40 percent on Aug. 8, the lowest since August 2013. The price of the 2.25 percent bond due in September 2023 was at 98.13 percent of face value.
Forward contracts based on the sterling overnight interbank average, or Sonia, show investors are betting U.K. borrowing costs will increase a full 25 basis points by March. The Bank of England’s key rate has been at a record-low 0.5 percent since March 2009.
Food sales at stores open at least 12 months plunged 3.5 percent in the three months through July from a year earlier, the British Retail Consortium said today. Like-for-like retail sales dropped 0.2 percent in the same period, the BRC said.
Gilts returned 5.9 percent this year through yesterday, Bloomberg World Bond Indexes show. Treasuries gained 3.9 percent and German securities earned 6.3 percent.
The U.K. government auctioned 2.25 billion pounds of bonds maturing in 2030 today.