The pound climbed to an 11-week high versus the dollar after a report showed U.K. manufacturing shrank less than economists predicted last month, weakening the case for more central-bank stimulus that debases the currency.
Sterling strengthened against all 16 of its major counterparts as Nationwide Building Society said there were signs of momentum in the property market even as house prices were little changed in April. The U.K. currency has gained 1.5 percent in the past month, the second-best performer among developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Government bonds rose.
“It was a better reading than anticipated and it continues the theme of a slight improvement,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “Over the course of the last few sessions we have been grinding higher in sterling. For now, it’s a more constructive backdrop.”
The pound gained 0.3 percent to $1.5572 at 4:58 p.m. London time after climbing to $1.5596, the highest since Feb. 13. It appreciated for a sixth day against the U.S. currency, the longest run of gains since the period through April 27, 2012. Sterling was little changed at 84.70 pence per euro. It advanced to 83.98 pence on April 26, the strongest level since Jan. 24.
The pound jumped above its 100-day moving average against the dollar for the first time since Jan. 16. Even so, it is still down 2.9 percent this year against its developed-market peers.
Sterling has pared its decline this year as reports fueled optimism that the economy is on a path to recovery. Gross domestic product increased 0.3 percent in the first three months of the year, exceeding economists’ forecasts, data from the Office for National Statistics showed last week.
A Bank of England report yesterday showed U.K. lenders granted more loans for homes in March than analysts predicted, adding to signs the economy is improving.
The Bank of England’s Monetary Policy Committee next meets on May 8-9. Governor Mervyn King has wanted to expand the central bank’s 375 billion-pound asset purchase program, or quantitative easing, for three consecutive months but has been outvoted by a majority on the nine-member policy committee, minutes of their meetings show.
“There may be more calls for the BOE to do more before long to stimulate the recovery,” Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London, wrote in a note today. “With so many positives seemingly in sterling’s price, we think that potential disappointments from U.K. data releases this week could leave the pound vulnerable to renewed downside correction.”
The 10-year gilt yield fell three basis points, or 0.03 percentage point, to 1.65 percent after climbing to 1.71 percent. The 1.75 percent bond due September 2022 gained 0.33, or 3.30 pounds per 1,000-pound face amount, to 100.85.
Gilts returned 1.1 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds rose 1 percent and U.S. Treasuries earned 0.9 percent.