Pound Surges Most in 3 Years on Signs U.K. Strengthening
The pound had its biggest weekly gain versus the dollar in more than three years as U.K. manufacturing, services and home-price data beat economist forecasts, boosting confidence in the economy.
Sterling appreciated for the first week in six against the euro. It rallied to the strongest level in more than three months versus the greenback, as the U.S. currency dropped versus all but two of its 16 major counterparts. U.K. government bonds fell for a third week after Bank of England policy makers kept stimulus measures unchanged at Governor Mervyn King’s final meeting.
“Sterling has enjoyed a happy combination of better-than-expected economic data at the same time as the bullish mood on the U.S. dollar was on the retreat,” said Daragh Maher, a London-based currency strategist at HSBC Holdings Plc. “The fact that it also outperformed the euro likely reflected the more aggressively short position that the market had on the pound when the week began.” A short position is a bet an asset price will decline.
The pound advanced 2.3 percent to $1.5553 as of 5:12 p.m. London time yesterday, the biggest weekly gain since October 2009. It jumped to $1.5684 on June 6, the strongest level since Feb. 13. The U.K. currency appreciated 0.6 percent to 85.04 pence per euro.
Sterling has gained the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes in the past three months amid waning speculation the U.K. central bank will introduce new measures to spur the economy. It rose 5.3 percent in the period, the indexes show.
The currency was boosted after a June 5 report showed a gauge of service industry activity from Markit Economics and the Chartered Institute of Purchasing and Supply rose to 54.9 for May, the highest in 14 months. That’s more than the 53.1 median forecast in a Bloomberg survey. A reading above 50 indicates expansion. Separate Markit reports on manufacturing and construction on the prior two days also rose more than economists estimated. U.K. house prices rose for a fourth month in May, Halifax said on June 6.
The Bank of England kept its asset-purchase target at 375 billion pounds and the benchmark interest rate at a record low of 0.5 percent on June 6. King’s successor Mark Carney takes over at the start of July.
“The next big thing that pound moves are going to be based on is what the view is of Carney when he comes in,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “There’s going to be nervousness over what he could do.”
The U.K. 10-year yield climbed seven basis points, or 0.07 percentage point, in the week to 2.07 percent. The price of the 1.75 percent bond due in September 2022 declined to 97.325.
The U.K. Debt Management Office will auction 3.75 billion pounds of new benchmark 10-year gilts on June 11 and 2.25 billion pounds of debt due in 2032 two days later.
To contact the reporter on this story: Lucy Meakin in London at firstname.lastname@example.org.