The pound strengthened to a three-week high against the euro after a government report showed U.K. jobless claims fell more last month than economists forecast.
Sterling advanced for a second day versus the 17-nation currency as a wider measure of unemployment declined in April, adding to evidence an economic recovery is under way. U.K. 30-year bonds rose for a second day after yields climbed to the highest since February yesterday. Gilts have led losses among the bonds of Group-of-Seven nations this year as government securities have tumbled amid speculation the Federal Reserve will taper its asset purchases.
“The pound is outperforming across the board,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “U.K. data continues to point to a recovery. Overseas investors are encouraged by the data and are buying the pound in order to purchase U.K. assets.”
The pound rose 0.1 percent to 85.03 pence per euro as of 4:35 p.m. London time after appreciating to 84.70 pence, the strongest level since May 21. The U.K. currency rose 0.2 percent to $1.5676 after climbing as much as 0.3 percent.
Sterling has gained 5.8 percent in the past three months, the best performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar was little changed and the euro appreciated 2.6 percent.
U.K. jobless claims fell by 8,600 in May to 1.51 million, the Office for National Statistics said in London. Economists surveyed by Bloomberg News predicted a decline of 5,000. Employment rose 24,000 to a record 29.8 million, while the jobless rate stayed at 7.8 percent.
The yield on the 30-year gilt fell two basis points, or 0.02 percentage point, to 3.40 percent after climbing to 3.47 percent yesterday, the highest level since Feb. 14. The price of the 3.25 percent security due in January 2044 rose 0.29, or 2.90 pounds per 1,000-pound face amount, to 97.10.
The benchmark 10-year yield also slid two basis points, to 2.16 percent, after increasing to 2.24 percent yesterday, also the most since Feb. 14.
“The move today may just be because of the yield levels we have right now,” said Elisabeth Afseth, a fixed-income analyst at Investec Bank Plc in London. “We have obviously had a big move over the past few days and so people might think there’s a bit of value at these levels.”
Gilts handed investors a loss of 2 percent this year through yesterday, according to the Bloomberg U.K. Sovereign Bond Index. German bonds and U.S. Treasuries dropped 1.2 percent, separate Bloomberg indexes show.
The extra yield investors demand to hold 10-year gilts instead of similar-maturity German bunds has widened four basis points this week to 56 basis points.
The decline in gilts this year is “part of the bigger picture,” said Jason Simpson, a rates strategist at Banco Santander SA in London. “It’s all about the Fed. In a falling market, unless domestic factors are supportive, you expect gilts to underperform, given they are a thinner market than bunds or Treasuries. It is also not really a coincidence that the market is underperforming in a week that has two auctions.”
The U.K. Debt Management Office is scheduled to auction 2.25 billion pounds of securities due in 2032 tomorrow, following a 3.75 billion-pound sale of new benchmark debt maturing in 2023 yesterday.