The pound rose for a sixth week versus the dollar, sending it to a four-month high, on signs the economy is emerging from recession and after the Federal Reserve announced another round of stimulus measures.
Sterling matched the longest run of weekly gains since July 2007 as reports showed the U.K. trade deficit shrank in July as exports soared and unemployment fell the most in more than two years. The Dollar Index slid to the lowest since May after the Fed announced Sept. 13 a third series of asset purchases, known as quantitative easing, to boost the economy. Gilts fell for a second week amid increased bets for faster inflation, pushing 10-year U.K. yields to the highest level in four months.
“Sterling is being helped by a broad dollar selloff after the Fed announced open-ended QE,” said Chris Turner, head of foreign-exchange strategy at ING Groep NV in London. “The U.K. data we have seen can’t be bad for the currency, with expectations for the economy to have pulled out of recession in the third quarter. You can’t rule out a move to $1.65 now.”
Sterling rose 1.4 percent in the week to $1.6241 at 5:02 p.m. London time yesterday, after climbing to $1.6256, the highest level since April 30. The pound dropped 1 percent to 80.88 pence per euro after touching 81.15 pence, the weakest since June 15.
The pound has appreciated 0.4 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar fell 3.5 percent and the euro rose 3.7 percent.
The dollar depreciated after Fed Chairman Ben S. Bernanke announced the central bank’s third round of large-scale asset purchases since 2008, with the difference that it didn’t set any limit on the ultimate amount it would buy or the duration of the program. Instead, stimulus will be expanded until the Fed sees “sustained improvement” in the labor market.
U.K. government bonds fell before a report next week that economists in a Bloomberg survey said will show inflation rose 0.5 percent last month versus a 0.1 percent increase in July. Minutes from this month’s Bank of England policy meeting are also due. The nine-member Monetary Policy Committee, led by Governor Mervyn King, left the bank’s main interest rate at a record low 0.5 percent and maintained its asset-purchase target at 375 billion pounds on Sept. 6.
Ten-year gilt yields climbed 28 basis points in the week, or 0.28 percentage point, to 1.97 percent, the highest since May 10. The 1.75 percent bond maturing in September 2022 fell 2.54, or 25.4 pounds per 1,000-pound face amount, to 98.06.
The U.K. Debt Management Office is scheduled to sell 4.5 billion pounds of five-year gilts on Sept. 20.
Gilts have returned 2.5 percent this year through Sept. 13, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds also gained 2.5 percent and U.S. Treasuries earned 1.8 percent.