Pound Strengthens Fifth Day as Cameron Sees Recovery; Gilts Rise
The pound strengthened for a fifth day against the dollar, the longest winning streak in almost three months, after Prime Minister David Cameron said an improving economy may allow the government to cut taxes.
The U.K. currency advanced versus 12 of its 16 major counterparts before a report this week that analysts say will show economic growth accelerated in the second quarter. The expansion of the financial services industry may create more than 250,000 jobs and fuel a 2 percent to 3 percent increase in gross domestic product, according to PricewaterhouseCoopers LLP. U.K. government bonds rose.
“The data of late has been consistent with a gradually improving backdrop and something of a self-sustaining recovery,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “That’s providing a reasonable start to the week from a sterling perspective.”
The pound rose 0.6 percent to $1.5365 at 4:55 p.m. London time after appreciating to $1.5377, the strongest level since level June 26. The winning streak is the longest since the period ended May 1. Sterling advanced 0.3 percent to 85.88 pence per euro.
Measures of U.K. services, manufacturing and construction all improved last month and recent reports have suggested increasing house prices and falling unemployment are helping to spur consumer confidence.
“As we start to see the economy grow stronger -- and it is growing stronger -- as we start to see the country improve, actually I want to give people back some of their hard-earned money and try to reduce their taxes,” Cameron said in an interview on BBC Television broadcast yesterday. “Your economy does better if you say to people you’ve worked hard, you’ve done the right thing, here is some of your own money back.”
Britain’s GDP expanded 0.6 percent in the second quarter, compared with 0.3 percent in the previous three months, according to the median forecast in a Bloomberg News survey before the Office for National Statistics publishes the data on July 25.
About 47,000 jobs may be added in the financial services industry, while there is potential for 218,000 positions to be created in the wider economy, PricewaterhouseCoopers said in a report today.
Britain’s recovery remains bumpy and the pound’s gains will also be limited amid speculation the central bank will introduce formal policy guidance in August, according to Morgan Stanley.
“The uneven nature of the recovery is potentially pound negative,” Morgan Stanley analysts led by Hans Redeker, head of global foreign-exchange strategy in London, wrote today in a note to clients. “We maintain our medium-term pound view despite our short position being challenged.” A short position is a bet an asset will decline.
The pound has strengthened 2.1 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-market currencies. The euro rose 2.7 percent and the dollar climbed 1.6 percent.
The 10-year gilt yield declined two basis points, or 0.02 percentage point, to 2.26 percent after falling to 2.24 percent on July 19, the lowest level since June 20. The 1.75 percent bond due in September 2022 rose 0.19, or 1.90 pounds to 1,000-pound face amount, to 95.81.
Britain’s government securities handed investors a loss of 2.5 percent this year through July 19, according to Bloomberg World Bond Indexes. German bonds fell 0.6 percent and Treasuries declined 2.2 percent.