The pound advanced for a fourth day against the dollar, approaching a four-year high, as investors added to bets on faster U.K. economic growth.
Sterling gained versus the euro even as U.K. gross domestic product accelerated in the first quarter at a slower pace than analysts expected. Bank of England Governor Mark Carney said “the recovery is starting to broaden out” and described policy makers as “prudently optimistic,” according to a report on the Bristol Post’s website today. Central bank official Ian McCafferty said “chances of a fully sustained recovery” were at the “highest” for a long time.
“Sterling developed an initial negative response to GDP given that it had come in slightly below market consensus expectations,” said Ian Stannard, the head of European currency strategy at Morgan Stanley in London. “Despite this slight disappointment, the overall growth picture in the U.K. remains relatively robust. We expect the pound to remain supported near-term against the dollar.”
The pound rose 0.2 percent to $1.6841 as of 4:10 p.m. London time after climbing to $1.6853 yesterday, the highest level since November 2009. Sterling appreciated 0.5 percent to 82.05 pence per euro.
Britain’s GDP rose 0.8 percent in the first quarter, up from 0.7 percent in the final three months of 2013, the Office for National Statistics in London said. The median estimate of economists surveyed by Bloomberg News was for growth of 0.9 percent.
The U.K. is the first Group-of-Seven nation to report first-quarter GDP. The International Monetary Fund forecasts the nation will outperform its major-economy peers, with growth of 2.9 percent this year.
Sterling has rallied 5.8 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid signs stronger economic growth will spur the Bank of England to raise borrowing costs sooner than it forecast. The euro appreciated 0.9 percent and the dollar rose 0.3 percent.
“We all want the recovery to be sustainable and the early signs are consistent with that,” Carney was quoted as saying by the Bristol Post. “When we do begin to see increases in interest rates they will be gradual and they will be limited. There is still considerable slack in the labor market. The Monetary Policy Committee is comfortable with the position we are at now,” he said, referring to the central bank’s policy-making body.
U.K. government bonds fell for a second day as the Debt Management Office sold securities due in September 2024.
Benchmark 10-year gilt yields increased three basis points, or 0.03 percentage point, to 2.69 percent. The 2.25 percent bond maturing in September 2023 fell 0.235, or 2.35 pounds per 1,000-pound face amount, to 96.355.
“The exact path of Bank Rate over the next few years will depend on how the economy develops,” McCafferty said in the text of a speech delivered in Northern Ireland on April 1 and published today. “To the extent that the endpoint of our normalization journey –- the level of the ‘neutral’ rate –- is materially lower than before the crisis, we clearly have less far to travel, which might make the first rate rise appear less pressing.”
The Bank of England’s main interest rate has been at a record-low 0.5 percent since March 2009.
The debt office sold 3.5 billion pounds of September 2024 gilts at an average yield of 2.817 percent, compared with 2.928 percent at a previous auction of the same bonds on March 11.
Gilts returned 3.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities earned 3 percent and U.S. Treasuries gained 2.1 percent.