Pound Gains Most Since July as Confidence Underscores Rate Bets

The pound had its biggest weekly advance versus the euro since July as consumer confidence data in the U.K. underscored the case for the Bank of England to raise interest rates before its euro-area peer.

Sterling climbed to the strongest level in more than two weeks against the common currency today. A report showed inflation in the euro region slowed this month after European Central Bank President Mario Draghi said on Aug. 22 that price expectations in the currency bloc have declined, fueling speculation the central bank will add to monetary stimulus. Benchmark 10-year government bond yields fell the most this month since January.

“It was made all the clearer by Draghi’s speech that inevitably whenever the BOE do hike, it will be ahead of the ECB,” said Jane Foley, senior foreign-exchange strategist at Rabobank International in London. “That message has been instrumental really in providing selling opportunities every time euro sterling goes to about the 80 pence level.”

The pound advanced 0.2 percent to 79.30 pence per euro at 4:55 p.m. London time, having touched 79.28 pence, its strongest level since Aug. 13. It has gained 0.8 percent this week, the most since the period ended July 4. Sterling was little changed at $1.6588, 0.1 percent higher since Aug. 22. That snapped a seven-week slide versus the dollar.

Confidence Data

GfK NOP Ltd. said its consumer sentiment index rose 3 points to 1 this month, matching June’s reading, which was the highest since March 2005. Gauges of Britons’ outlook for their personal financial situation over the coming year and for the economy in that period also improved.

Euro-area consumer prices rose 0.3 percent in August from a year earlier after a 0.4 percent increase in July, the European Union’s statistics office in Luxembourg said today. That’s the lowest rate since October 2009.

Sterling fell 1.3 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. While the pound has strengthened 7.2 percent in the past year, it was overtaken by the New Zealand dollar as the best performer among the indexes.

The benchmark 10-year gilt yield was little changed at 2.37 percent, still declining 23 basis points, or 0.23 percentage point, this month. The price of the 2.75 percent bond due in September 2024 was at 103.38 percent of face value.

Gilts returned 8.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries earned 4.5 percent and German securities gained 7.5 percent.

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Alexa Liautaud in London at aliautaud@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Todd White, Keith Jenkins

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