Pound Rises Fifth Day Versus Euro as U.K. Construction Increases
The pound rose for a fifth day versus the euro as a report showed a gauge of U.K. construction based on a survey of purchasing managers increased for a fourth month in August, reaching the highest in almost six years.
Sterling touched a three-month high versus the common currency before Bank of England policy makers meet this week. U.K. construction activity climbed to 59.1 last month from 57 in July, Markit Economics and the Chartered Institute of Purchasing and Supply said. The pound also rose as Verizon Communications Inc. agreed to buy Vodafone Group Plc (VOD)’s 45 percent stake in Verizon Wireless for $130 billion. U.K. 10-year gilt yields rose to the highest level in two years.
“The pound is boosted by the assumption that the data is looking much better in the course of recent weeks,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “Markets have perhaps realized that they’ve been maintaining sterling net-short positions for too long. Vodafone news also helps.” A short position is a bet that an asset price will fall.
The pound appreciated 0.2 percent to 84.72 pence per euro at 4:10 p.m. London time after reaching 84.46 pence, the strongest level since May 21. Sterling was little changed at $1.5533.
The latest reading in U.K. construction output showed the fastest expansion since September 2007, Markit said in a statement. Manufacturing output rose to a 2 1/2-year high of 57.2 last month, a report showed yesterday. A reading above 50 indicates expansion.
Verizon, which had a market value of $136 billion last week, will pay Newbury, England-based Vodafone $58.9 billion in cash and issue $60.2 billion in stock.
The news will provide support for the pound even though detail is not immediately available on how much of the transaction will go through the foreign-exchange market, said Ian Stannard, head of European currency strategy at Morgan Stanley in London.
“The Vodafone deal is seen as a proxy of foreign direct investment flows into the U.K. and therefore will have a positive effect on the pound,” said Stannard. “Our study on M&A flows showed that it doesn’t matter so much with regard to the structure of the deal, and an announcement of a deal like this is likely to have an impact on currencies.”
The pound strengthened 6.5 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 3.9 percent and the dollar climbed 2.7 percent.
The Bank of England’s nine-member Monetary Policy Committee will keep its asset-purchase target at 375 billion pounds on Sept. 5, according to all 38 economists in a Bloomberg survey. Officials will also hold the main interest rate at a record-low 0.5 percent as they assess the impact of forward guidance, a separate survey showed.
Carney said on Aug. 28 that the central bank doesn’t rule out providing more stimulus to the economy.
The 10-year gilt yields increased five basis points, or 0.05 percentage point, to 2.89 percent, after reaching 2.90 percent, the highest since Aug. 1, 2011. The 2.25 percent bond maturing in September 2023 dropped 0.385, or 3.85 pounds per 1,000-pound face amount, to 94.46.
The Debt Management Office auctioned 1.5 billion pounds of inflation-linked bonds due in 2024 at a real yield of minus 0.159 percent, compared with minus 0.758 percent at a previous sale on June 4.
Gilts lost 4.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 2.4 percent and Treasuries declined 3.3 percent.
To contact the reporter on this story: Neal Armstrong in London at firstname.lastname@example.org