The pound strengthened versus the dollar for the first time in eight days and U.K. government bonds fell after a report showed mortgage approvals jumped the most in six years in April.
Sterling climbed from a four-week low as the Bank of England said approvals rose to 68,076, the highest level since February last year, from an upwardly revised 61,945 in March and compared with the 63,500 estimated in a Bloomberg economist survey. A report on construction also beat forecasts in a sign of confidence in Britain’s economy.
“Data today suggests that the U.K. economy is returning to stronger growth,” said Lee Hardman, a London-based strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “That improving cyclical momentum has been favorable for the pound.”
The pound gained 0.7 percent to $1.5314 as of 4:24 p.m. London time and weakened 1 percent to 72.58 pence per euro, its fifth day of losses versus Europe’s single currency.
Ten-year gilts tumbled after the U.K. Debt Management Office sold 3.25 billion pounds of securities due in September 2025.
Yields rose 11 basis points, or 0.11 percentage point, to 1.95 percent, the highest since May 22. The 5 percent bond due in March 2025 fell 1.11, or 11.1 pounds per 1,000-pound face amount, to 126.93.
Sterling’s recovery against the dollar may be short-lived as speculation increases that the Federal Reserve will raise interest rates before the Bank of England.
“We expect data in the U.S. to show strengthening growth momentum and the Fed will feel more comfortable to gradually begin raising rates,” Hardman said. “Ultimately, the Fed will raise rates well ahead of Bank of England,” which will drag sterling below $1.50, he said.
Sonia forward contracts show the first 25 basis-point rate increase in the U.K. will come later than July 2016. Fed officials will tighten policy in about seven months, according to a Morgan Stanley index.
Standard Bank Group Ltd. said they’re “adding a short sterling/dollar position with a target of $1.5030,” or 1.8 percent weaker than current levels, according to a note from Steve Barrow, the lender’s London-based head of Group-of-10 strategy. Going short on a currency means betting it will decline.
The euro, meanwhile, was supported by news that Europe’s leaders and the International Monetary Fund are intensifying efforts to reach a deal with Greece and avert a default.