The pound rose for a second day against the dollar before reports tomorrow that economists said will show industrial production expanded and the trade deficit narrowed, adding to signs the recovery is progressing.
Britain’s currency advanced for the first time in five days versus the euro as Bank of England Governor Mark Carney said in a speech in New York that U.K. economic news “has been positive.” The central bank kept its main interest rate at a record-low 0.5 percent last week to help foster a recovery. Britain’s government bonds declined.
“The U.K. data we are going to get this week will inform on the missing links in the U.K. recovery,” said Paul Robson, a currency strategist at Royal Bank of Scotland Group Plc in London. “The Bank of England is staying very quiet on tightening monetary conditions, which is ultimately a green light for people to push sterling higher, most notably against the dollar.”
The pound rose 0.4 percent to $1.6407 at 5:27 p.m. London time after climbing to $1.6443 on Dec. 2, the highest level since August 2011. The U.K. currency appreciated 0.2 percent to 83.65 pence per euro after weakening 1.2 percent in the previous four days.
Carney said Britain’s recovery will need to be sustained for a while before it is strong enough to withstand higher interest rates.
“As uncertainty diminishes, credit conditions improve and balance sheet repair progresses, monetary policy is gaining traction,” he said in prepared remarks for a speech at the Economic Club of New York. “A recovery may be gaining pace but our economies are a long way from normal.”
Industrial output rose 0.4 percent in October after climbing 0.9 percent the previous month, according to a Bloomberg News survey before the Office for National Statistics releases the figures tomorrow. The trade deficit narrowed to 9.2 billion pounds from 9.82 billion pounds, economists forecast in a separate Bloomberg survey.
The pound has gained 5.9 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes amid speculation a strengthening economy will prompt the Bank of England to increase borrowing costs. The euro appreciated 4 percent, while the dollar fell 0.2 percent.
Sterling “should be supported by stronger economic data,” Morgan Stanley analysts led by Hans Redeker in London wrote in a note to clients. While the pound is likely to rise against the euro, gains versus the dollar may be tempered particularly if the data tomorrow show any weakness in the outlook for trade, they said.
“Our economists expect a pullback in U.K. industrial production, which, if contrasted with U.S. growth strength, could weigh on cable,” they said, referring to the pound-dollar exchange rate.
The 10-year gilt yield climbed two basis points, or 0.02 percentage point, to 2.92 percent after rising to 2.98 percent on Dec. 6, the highest level since Sept. 18. The 2.25 percent bond maturing in September 2023 fell 0.145, or 1.45 pounds per 1,000-pound face amount, to 94.355.
Gilts handed investors a loss of 3.8 percent this year through Dec. 6, according to Bloomberg World Bond Indexes. German securities fell 1.8 percent and U.S. Treasuries declined 2.8 percent.