The pound rose to a one-week high versus the dollar after reports showed U.K. home prices gained for a second month in October and consumer confidence increased.
U.K. government bonds climbed for the first time in three days as Barclays Plc pushed back its forecast for the Bank of England’s first interest-rate increase since 2007 to February from November. Minutes of BOE policy makers’ most recent meeting are set to be published on Oct. 22. A report two days later will show the British economy expanded for a seventh consecutive quarter, according to the median estimate of analysts surveyed by Bloomberg.
“It’s seeing a short-term resurgence,” Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London, said of the U.K. currency. “It’s a slightly more positive risk environment and I guess the underlying theme is still going to be data-driven.”
Sterling rose 0.2 percent to $1.6129 at 4:18 p.m. London time after touching $1.6151, the highest since Oct. 9. It fell to $1.5875 on Oct. 15, a level not seen since November. The pound strengthened 0.1 percent to 79.22 pence per euro.
Investors may sell the U.K. currency as it advances, according to Stretch, who doesn’t “see the justification for a squeeze higher to $1.62 or anything of that magnitude,” he said.
U.K. home prices rose 2.6 percent in October from the previous month, taking the annual gain across Britain to 7.6 percent, compared with 7.9 percent in September, according to property website Rightmove Plc. A separate gauge of consumer confidence in the third quarter increased three points versus year ago, the Deloitte Consumer Tracker showed today. That’s the highest since the survey began in 2011.
The 10-year gilt yield fell three basis points, or 0.03 percentage point, to 2.16 percent. The rate dropped to 1.92 percent on Oct. 15, the lowest level since May 31, 2013. The 2.75 percent bond due in September 2024 increased 0.285, or 2.85 pounds per 1,000-pound face amount, to 105.24 today.
Forward contracts based on the sterling overnight interbank average, or Sonia, showed investors have pushed back bets on a 25 basis-point increase in U.K. borrowing costs to September, from February just two months ago.
“We have shifted the ground on people’s view of the economy and the Bank of England’s policy outlook very radically,” said Marc Ostwald, a strategist at ADM Investor Services International Ltd. in London. “It’s going to be a lot choppier. The yield range into the end of the year could be 2 to 2.5 percent in 10-year terms.”
The central bank should raise interest rates now, policy maker Martin Weale said in an interview with the Telegraph newspaper on Oct. 17. On the same day, BOE Chief Economist Andy Haldane said he favors holding rates at a record low for longer.
Gilts were the best-performing sovereign securities tracked by Bloomberg World Bond Indexes in the past three months through Oct. 17, having returned 5 percent. Euro-area government debt earned 2.1 percent and U.S. Treasuries 1.9 percent.