The pound rose the most in two months versus the dollar this week as manufacturing and production data signaled the U.K. recovery is on track, boosting bets the Bank of England will raise interest rates.
Sterling climbed to a seven-week high versus the U.S. currency after Federal Reserve minutes damped speculation American policy makers are moving toward boosting borrowing costs. The pound also rallied as the International Monetary Fund raised its forecasts for Britain’s growth, predicting it will have the fastest expansion among developed nations. U.K. government bonds rose, with 10-year yields falling to the lowest level since October.
“Sterling is going to nudge higher throughout the course of this month,” said Harry Adams, head of trading at Argentex LLP, a currency advisory company in London. “Any rise in CPI or improvement in the unemployment figures, that will certainly be a catalyst” for further gains, he said, referring to the consumer-price index.
The pound gained 1 percent this week to $1.6732 at 5 p.m. London time yesterday, the biggest advance since the period ending Feb. 14. It advanced to $1.6820 on April 10, the strongest level since Feb. 17. The U.K. currency weakened 0.5 percent to 83.06 pence per euro.
Industrial production increased 0.9 percent in February from the previous month and manufacturing output climbed 1 percent, figures from the statistics office in London showed on April 8.
The IMF raised its forecasts for U.K. growth, predicting the economy will grow 2.9 percent in 2014. In its gross-domestic-product estimate published April 8, the National Institute of Economic and Social Research predicted economic growth accelerated to 0.9 percent in the first quarter.
Sterling gained 4.4 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro climbed 1.9 percent, while the dollar slid 1 percent.
Policy makers kept the benchmark interest rate unchanged at a record-low 0.5 percent at a meeting this week.
Annualized inflation slowed to 1.6 percent in March, from 1.7 percent the month before, according to a Bloomberg survey of economists before the April 15 release. A day later, the statistics office will say the unemployment rate fell to 7.1 percent in the three months through February, near the 7 percent level that policy makers have said would prompt them to consider raising rates.
Officials said in February there would be scope to maintain record-low rates even after the threshold is reached.
The yield on the benchmark 10-year gilt dropped seven basis points, or 0.07 percentage point this week, to 2.61 percent. The 2.25 percent bond due in September 2023 gained 0.61, or 6.10 pounds per 1,000-pound face amount, to 97.005. The yield fell to 2.59 percent yesterday, the least since Oct. 31.
Gilts returned 3.4 percent this year through April 10, according to Bloomberg World Bond Indexes. German bonds earned 2.8 percent and Treasuries rose 2.3 percent.