The pound rose against the dollar, climbing from the lowest level in more than a year, after a report showed U.K. retail sales increased more in November than economists predicted.
Sterling strengthened the most versus the euro in 10 months as the Office for National Statistics said the volume of sales including auto fuel increased 1.6 percent, the most this year. Economists forecast a 0.4 percent gain, according to the median estimate in a Bloomberg News survey. Minutes of the Bank of England’s December meeting, released yesterday, showed policy makers voted 7-2 to keep interest rates at a record low. U.K. government bonds fell.
“The market was taken by surprise,” said Jane Foley, senior foreign-exchange strategist at Rabobank International in London. “Retail sales were extremely strong. However, markets aren’t anticipating a rate rise until 2016 and even strong data isn’t enough to change that.”
The pound climbed 0.4 percent to $1.5642 at 4:06 p.m. London time after falling to $1.5541 yesterday, the lowest level since September 2013. The U.K. currency appreciated 1 percent to 78.44 pence per euro, the biggest advance since Feb. 12.
Sterling has gained 5.4 percent in the past year, the best performer after the dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback surged 11 percent, while the euro fell 1.6 percent.
BOE officials said a “promising” pickup in wage growth wasn’t enough to raise concerns about the outlook for medium-term inflation, according to minutes of its Dec. 3-4 meeting released yesterday. The Monetary Policy Committee said “by far” the most significant developments in the month were the continued drop in oil prices and a reduction in market interest rates.
The annual rate of consumer-price growth declined to 1 percent last month, the least since 2002, from 1.3 percent in October, the ONS said this week. Wages grew 1.4 percent from a year earlier, up from 1 percent in the third quarter, a separate report showed yesterday.
The central bank’s official rate has been at a record-low 0.5 percent since March 2009. Two of the MPC’s nine members also voted for a quarter-point rate increase in November.
Forward contracts based on the sterling overnight interbank average, or Sonia, show investors aren’t expecting a 25 basis-point increase in the rate before the end of November. About four months ago, the market was priced for an increase in February 2015.
Benchmark 10-year gilt yields jumped 10 basis points, or 0.1 percentage point, to 1.87 percent. That’s the biggest increase since Oct. 16. The 2.75 percent bond due in September 2024 fell 0.935, or 9.35 pounds per 1,000-pound face amount, to 107.765.
Gilts returned 15 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities earned 10 percent and U.S. Treasuries 6.3 percent.