The pound strengthened for a second week against the dollar as an unexpected decline in the unemployment rate and an increase in house prices added to signs Britain’s economy is gaining momentum.
The U.K. currency advanced versus all except two of its 16 major peers this week and reached the strongest since January against the dollar as the improving data fueled bets the Bank of England will raise interest rates earlier than it has projected. Policy makers will release the minutes of their September meeting next week. U.K. government bonds rose after 10-year yields climbed above 3 percent this month for the first time since July 2011.
“The pound is likely to continue to outperform most major currencies in the near term,” said Neil Jones, head of hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “The economic recovery is gathering pace and confidence is improving. The market is not crowded yet and therefore there’s still room for further gains.”
The pound advanced 1.5 percent this week to $1.5862 at 5 p.m. in London yesterday, when it rose to $1.5877, the highest level since Feb. 1. The U.K. currency climbed 0.7 percent to 83.70 pence per euro after appreciating to 83.57 yesterday, the strongest since Jan. 18.
The jobless rate as measured by International Labour Organization methods fell to 7.7 percent in the three months through July from 7.8 percent in the second quarter, the Office for National Statistics said Sept. 11. A house-price gauge rose to the highest in almost seven years in August as government measures boosted demand, the Royal Institution of Chartered Surveyors said Sept. 10.
The U.K. economy will grow 1.3 percent this year and 2 percent in 2014, according to the median of 53 analysts in a monthly survey by Bloomberg News. The pace of growth projected for next year would be the fastest since 2007.
Sterling has risen 7.7 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.6 percent and the euro advanced 3.3 percent.
The Bank of England will increase its benchmark interest rate from 0.5 percent in the first half of 2015, according to a Bloomberg Global Poll of investors, analysts and traders. Governor Mark Carney has said officials can wait until the end of 2016 before raising borrowing costs.
The central bank will release the minutes of its Sept. 4-5 gathering on Sept. 18.
The benchmark 10-year gilt yield fell two basis points, or 0.02 percentage point, this week to 2.91 percent after climbing to 3.05 percent on Sept. 11, the highest level since July 27, 2011. The 2.25 percent bond due September 2023 rose 0.21, or 2.10 pounds per 1,000-pound face amount, to 94.295.
U.K. government bonds handed investors a loss of 4.6 percent this year through Sept. 12, according to Bloomberg World Bond Indexes. Treasuries declined 3.8 percent and German bunds dropped 2.7 percent.