Pound Climbs to Three-Week High Versus Euro on U.K. Growth Signs
The pound strengthened to a three-week high against the euro before U.K. reports this week that economists said will show home prices rose this month and mortgage approvals increased in November.
Sterling has appreciated versus 13 of its 16 major counterparts in 2013 amid speculation strength in the housing market will support the economic recovery. Bank of England policy makers meet next week after pledging this month to keep borrowing costs low until unemployment, currently at 7.4 percent, falls below 7 percent. U.K. government bonds, little changed today, finished their worst year since 1994 as demand for safer assets waned.
“There’s plenty of evidence that the U.K. economy is doing well,” said Peter Rosenstreich, chief currency strategist at Swissquote Bank SA in Geneva. “The pound should be well supported into next year because of speculation that interest rates may have to go up sooner than what’s implied by the Bank of England. The moves today may be exaggerated a bit by thin year-end trading volumes.”
The U.K. currency gained 0.4 percent to 83.32 pence per euro at 2:04 p.m. London time after appreciating to 83.17 pence, the strongest level since Dec. 5. The pound gained 0.2 percent to $1.6538 after climbing to $1.6578 on Dec. 27, the highest since August 2011.
A gauge of British home prices jumped 0.7 percent in December after increasing 0.6 percent in the previous month, according to a Bloomberg News survey before Nationwide Building Society releases the data on Friday. Mortgage approvals climbed to 69,700 in November, the highest since January 2008, from 67,700 a month earlier, a separate survey showed before Bank of England data the same day.
The pound has rallied 5.3 percent this year, the third-best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 8.4 percent and the dollar rose 3.3 percent.
Bank of England policy makers led by Governor Mark Carney said this month they are not in a rush to increase borrowing costs even as economic growth quickens.
“The recovery has some way to run before it would be appropriate to consider adjusting the exceptional level of monetary stimulus,” Carney told the House of Lords Economic Affairs Committee on Dec. 17. “It is welcome that the economy is growing again, but a return to growth is not yet a return to normality.”
The pound will weaken against the dollar and strengthen versus the euro in 2014, according to Bloomberg surveys. Sterling will decline to $1.59 by Dec. 31, according to the median estimate of analysts. The currency will strengthen to 81 pence versus the euro, the analysts predict.
The 10-year gilt yield fell one basis point, or 0.01 percentage point, to 3.02 percent at the close of trading today in London. The price of the 2.25 percent bond due in September 2023 rose 0.09, or 90 pence per 1,000-pound face amount, to 93.56. The yield jumped 1.19 percentage points this year, the biggest increase since 1994.
U.K. government securities lost 4.3 percent this year through yesterday, according to indexes compiled by Bank of America Merrill Lynch. German securities fell 2.3 percent and U.S. Treasuries declined 3.2 percent.
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