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Pound Rises to Three-Month High on U.K. Data, ECB Speculation

The pound rose to the highest in more than three months versus the dollar on signs the U.K. recession is easing and as speculation the European Central Bank will announce a plan to buy bonds boosted European currencies.

Gilts fell after data late yesterday showed services growth accelerated in August more than economists forecast, adding to the case for the Bank of England to refrain from expanding stimulus tomorrow. Analysts predict policy makers will keep monetary policy unchanged. The ECB also meets tomorrow, three days after President Mario Draghi made his strongest case yet for the purchase of indebted nations’ bonds to quell the euro-area debt crisis.

“The U.K. data is a marginal positive for sterling,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Plc in London. “European currencies including sterling are also doing better as the market seems to be taking the idea the ECB will be more active in stabilizing weak sovereign markets as a positive.”

The pound rose 0.3 percent to $1.5910 at 4:11 p.m. London time, after reaching $1.5934, the strongest level since May 16. The U.K. currency was little changed at 79.23 pence per euro after appreciating to 78.88 pence, the strongest since Aug. 23.

A services gauge based on a survey of purchasing managers surged to 53.7, the highest in five months, from 51 in July, Markit Economics and the Chartered Institute of Purchasing and Supply said in London yesterday. Economists had forecast an increase to 51.2, according to the median of 28 estimates in a Bloomberg News poll. A reading above 50 indicates growth.

Draghi Plan

Draghi’s bond-buying proposal involves unlimited purchases of government debt that will be matched by the ECB’s removal of an equivalent amount of money from elsewhere in the system to assuage concerns about printing money, two central bank officials briefed on the plan said.

Draghi told lawmakers in a closed-door session at the European Parliament in Brussels on Sept. 3 that the ECB has lost control of borrowing costs in the monetary union. Bloomberg News obtained a recording of his comments, some of which were published by Italian news agency AGI.

The pound has gained 1.4 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar fell 0.5 percent and the euro rose 1.5 percent.

Gilts Sale

Yields on 10-year gilts rose one basis point, or 0.01 percentage point, to 1.64 percent after reaching 1.71 percent yesterday, the highest since Aug. 21. The 1.75 percent bond maturing in September 2022 fell 0.115 or 1.15 pounds per 1,000-pound face amount, to 101.02.

Thirty-year rates rose four basis points to 2.97 percent after the Debt Management Office sold 1.75 billion pounds of the bonds at an average yield of 2.951 percent. Investors bid for 1.5 times the amount of gilts on offer. That compares with a so-called bid-to-cover ratio of 2.2 times at the previous sale on May 9, when yields averaged 3.224 percent.

Gilts also fell as data from the British Retail Consortium showed shop prices rose 1.1 percent in August from a year earlier, compared with a 1 percent gain in July.

Policy makers will leave the Bank of England’s asset-purchase target at 375 billion pounds, according to the median estimate of economists forecasts in a Bloomberg survey.

Gilts have returned 4.2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 3.7 percent and U.S. Treasuries earned 2.6 percent.

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