Pound Posts Biggest Weekly Advance in a Month as Deficit Narrows

The pound posted its biggest weekly gain versus the dollar in a month after a government report showed the U.K.’s trade deficit narrowed in June, adding to evidence the economic recovery is gathering momentum.

Sterling had its steepest weekly advance against the euro since April as data this week showed services output expanded the most in six years in July and industrial production rebounded in June. Britain’s currency strengthened against the dollar yesterday after Bank of England Governor Mark Carney reiterated policy makers’ commitment to bringing down inflation. Gilts trimmed a weekly decline.

“The markets have continued to price in the recovery story, and that’s providing a residual support for sterling currently,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.

The pound slipped 0.2 percent to $1.5504 as of 4:58 p.m. London time after rising to $1.5574 yesterday, the highest level since June 19. It has gained 1.4 percent this week, the most since the period ended July 12. Sterling strengthened 0.1 percent to 86.02 pence per euro, having appreciated 0.9 percent this week, the most since April 26.

Carney told BBC Radio 4’s “Today” program that “without question” inflation at 2 percent is the central bank’s target.

The pound jumped 0.9 percent against the dollar on Aug. 7 as the Bank of England’s Inflation Report and review of forward guidance on interest rates fueled speculation the outlook for growth and inflation will prevent it from keeping borrowing costs at a record low.

Recovering Economy

The pound has risen 1.1 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies, as reports have signaled the economy is recovering. The euro rose 3.3 percent and the dollar gained 0.7 percent.

Britain’s deficit on trade in goods narrowed to 8.1 billion pounds from 8.7 billion pounds in May, the lowest since July 2012, the Office for National Statistics said in London. Exports increased almost 5 percent in the second quarter, the most since the series began in 1998.

The benchmark 10-year gilt yield fell two basis points, or 0.02 percentage point, to 2.46 percent after rising to 2.56 percent on Aug. 7, the highest since June 25. The 1.75 percent bond due September 2022 rose 0.18, or 1.80 pounds per 1,000-pound face amount, to 94.26. The rate has increased three basis points this week.

U.K. government bonds have lost 3.6 percent this year through yesterday, Bloomberg World Bond Indexes show. German securities dropped 1.4 percent and Treasuries declined 2.5 percent.

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