The pound advanced for a second week versus the dollar after the U.K. jobless rate unexpectedly fell below 7 percent, the threshold the Bank of England has set to start considering raising interest rates.
Sterling climbed to the highest level in more than four years against the greenback and reached a six-week high versus the euro as the employment data added to signs the recovery is gaining momentum. The pound also appreciated versus the dollar after Federal Reserve Chair Janet Yellen signaled the U.S. central bank will keep an accommodative monetary policy, that has debased the greenback. U.K. government bonds declined.
“Strong employment numbers have boosted the pound,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “The U.K. will be the first major economy to raise interest rates. The pound has also benefited from a weaker U.S. dollar after Yellen’s comments.”
The pound gained 0.3 percent this week to $1.6787 as of 4:20 p.m. London time yesterday after climbing to $1.6842 on April 17, the highest level since November 2009. Sterling rose 0.8 percent to 82.31 pence per euro after appreciating to 82.15 pence on April 17, the strongest since March 6.
The unemployment rate dropped to 6.9 percent in the three months through February from 7.2 percent in the quarter through January, the Office for National Statistics said in London on April 16. Economists surveyed by Bloomberg News predicted a decline to 7.1 percent.
The data satisfies the first phase of interest-rate guidance, introduced by BOE Governor Mark Carney in August to damp speculation the central bank would rush to increase its official bank rate from a record-low 0.5 percent. He revised the plan in February to focus on spare capacity.
Market pricing shows the Bank of England will raise its benchmark by April 2015, according to ICAP Plc analysis. The forecast for the official bank rate at the April meeting was 0.79 percent on April 17, compared with 0.68 percent at the end of last week, based on sterling overnight index average rates.
Yellen, speaking to the Economic Club of New York on April 16, said the central bank has a “continuing commitment” to support the recovery even as policy makers now see the economy reaching full employment by late 2016.
The pound has gained 5.4 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes amid speculation the central bank is moving closer to raising borrowing costs. The euro rose 2.1 percent and the dollar advanced 1 percent.
Gilts declined for the first week in a month as signs the economic recovery is gaining momentum sapped demand for the safety of fixed-income assets.
The yield on the 10-year bond rose six basis points, or 0.06 percentage point, to 2.67 percent at the close of trading on April 17. The 2.25 percent security due September 2023 fell 0.45, or 4.50 pounds per 1,000-pound face amount, to 96.555. There was no trading of gilts yesterday due to Good Friday. The gilt market will be closed on April 21 for Easter Monday and reopens on April 22.
The Debt Management Office will sell 4 billion pounds of gilts maturing in July 2019 on April 24. The securities were sold at an average yield of 1.68 percent at the previous auction on March 4.
Gilts returned 2.8 percent this year though April 17, according to Bloomberg World Bond Indexes. German securities also earned 2.8 percent, while U.S. Treasuries rose 1.9 percent.