The pound reached an almost six-month high against the dollar before a report tomorrow that economists said will show the U.K. avoided a recession, boosting the case for the Bank of England to pause its asset purchases.
Sterling rose to the strongest in 20 months versus the euro after the Debt Management Office said Britain’s net financing requirement had fallen. Ten-year gilts were little changed before tomorrow’s first-quarter growth figures, which will show gross domestic product gained 0.1 percent after shrinking 0.3 percent in the fourth quarter, according to a Bloomberg survey. Minutes of the Bank of England’s April meeting showed policy maker Adam Posen dropped his push for extra quantitative easing.
“The pound has an asymmetry to it at the moment, it performs well when the market is both risk-on and -off,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “Posen has shifted the pound landscape. I would suggest QE is done.”
The pound was little changed at $1.6135 at 4:47 p.m. London time. It climbed as much as 0.2 percent to $1.6164, the most since Oct. 31. Sterling was 0.3 percent weaker at 81.82 pence per euro after reaching 81.44 pence, the strongest level since Aug. 23, 2010.
The euro advanced against all but two of its 16 major peers tracked by Bloomberg today, including the pound, after Spain, Italy and the Netherlands sold bonds, damping concern the region’s sovereign-debt crisis is worsening.
Britain’s currency has climbed 1.8 percent in the past month, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro dropped 0.7 percent.
A report last week showed U.K. inflation unexpectedly accelerated for the first time in six months in March, fueling speculation the Bank of England’s Monetary Policy Committee will pause its 325 billion-pound asset-purchase program on May 10.
Barclays Plc improved its three-month forecast for the pound against the euro to 79 pence from 84 pence, it said in a report yesterday. It also increased its 12-month prediction to 76 pence from 80 pence.
It recommends betting on a decline in the common currency against the pound and advises waiting until after the GDP release tomorrow. Investors should buy the pound at 81.90 pence per euro, betting that it will strengthen to 78.00 pence. They should exit the trade if sterling weakens to 82.70 pence, Barclays said.
U.K. 10-year bond yields were three basis points, or 0.03 percentage point, lower at 2.10 percent. The 4 percent security due March 2022 rose 0.255, or 2.55 pounds per 1,000-pound face amount, to 116.875 percent of face value.
Yields are retreating from tests above the 50-day moving average of 2.18 percent and should find support at the April low of 2.01 percent, according to data compiled by Bloomberg.
Planned gilt sales for the current fiscal were cut by 2 percent to 164.4 billion pounds after Britain’s financing requirement needs fell, the nation’s Debt Management Office said today.
The U.K. sold 4.75 billion pounds of gilts maturing in 2052 through banks today, with nearly 12 percent of the securities being purchased by overseas investors, according to the Debt Management Office. The sale received total orders of 9.8 billion pounds, the office said in a statement.
U.K. net borrowing excluding support for banks was 18.2 billion pounds in March, compared with 18 billion pounds a year earlier, the Office for National Statistics said today. The median of 20 forecasts in a Bloomberg News survey was for a shortfall of 16 billion pounds.
Gilts have handed investors a loss of 1.4 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. That’s the third-worst performance among 26 sovereign markets tracked by the indexes after Spain and Greece.
-- With assistance from TJ Marta in New York. Editors: Mark McCord, Paul Dobson