The pound declined from a two-week high against the euro as Bank of England policy maker Spencer Dale said it would take a long time until the U.K. economy was strong enough to justify higher interest rates.
Sterling extended losses versus the 17-nation currency after a German report showed business confidence in Europe’s biggest economy surged to the highest level in 19 months. While the U.K. is recovering, there’s still “a long way to go” before it has healed enough to withstand higher borrowing costs, Dale said in an interview on BBC Radio Merseyside. U.K. government bonds rose, paring a weekly decline.
“They are not in a rush to hike rates,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “This rally of sterling may be excessive and some correction might be on the cards while the euro should sustain gains.”
The pound weakened 0.4 percent to 83.54 pence per euro at 4:11 p.m. London time after appreciating to 83.17 pence, the strongest level since Nov. 7. The U.K. currency was little changed at $1.6193. It earlier climbed to $1.6217, the highest since Oct. 25.
U.K. policy makers will raise interest rates “when we’ve seen a sustained recovery and the economy is strong enough to stand it,” Dale said. “The message we’ve been giving to businesses is that we don’t think that’s anytime soon.”
Bank of England officials are not in a “rush” to increase the benchmark rate from a record-low 0.5 percent, the Sun newspaper quoted Deputy Governor Charles Bean as saying in an interview yesterday. While growth was picking up it was still muted, he said.
The pound weakened for the first time in three days versus the euro as the Ifo institute said its German business climate index, based on a survey of 7,000 executives, increased to 109.3 in November, the highest since April 2012. The result exceeded all 43 economist forecasts in a Bloomberg News survey.
The pound has strengthened 6.8 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 4.2 percent, while the dollar weakened 1.6 percent.
Sterling climbed to the highest in more than three years versus Australia’s dollar today amid speculation U.K. data next week will confirm economic growth accelerated in the third quarter and a gauge of house prices rose for a seventh month.
Gross domestic product climbed 0.8 percent after growing 0.7 percent in the previous three months, according to a Bloomberg survey before the Office for National Statistics releases the figures on Nov. 27. Home prices climbed 0.7 percent in November, a separate survey showed before the Nationwide Building Society issues the report next week.
“Going into next week we expect the upcoming U.K. data to highlight the resilience of the economic recovery and corroborate the view that the Bank of England would be moving towards removing policy accommodation before long,” Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. in London, wrote in a research note. “All that should keep sterling supported for now.”
The pound gained 0.8 percent to A$1.7682 after rising to A$1.7702, the strongest since July 2010. The U.K. currency was little changed at 164.94 yen. It earlier appreciated to 164.13 yen, the highest since October 2008.
The benchmark 10-year gilt yield fell two basis points, or 0.02 percentage point, to 2.80 percent, trimming this week’s increase to five basis points. The 2.25 percent bond due in September 2023 rose 0.175, or 1.75 pounds per 1,000-pound face amount, to 95.345.
Gilts handed investors a loss of 3.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 1.3 percent and U.S. Treasuries declined 2.6 percent.