Pound Climbs to 4-Year High on U.K.’s Resurgent Economic Growth
The pound advanced to the strongest level in more than four years against the dollar this week as signs the U.K. economic recovery is gathering momentum boosted the allure of British assets.
Sterling climbed for a fourth week versus the greenback as data showed growth accelerated in the first quarter and house prices rose at the fastest pace since 2007. The U.K. currency advanced against the euro as a purchasing managers index for manufacturing rose more than analysts forecast. Government bonds were little changed after Bank of England Governor Mark Carney said the recovery is starting to “broaden out” before the Monetary Policy Committee’s interest-rate decision on May 8.
“It has been another constructive week for sterling,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “Data continues to print well, the manufacturing PMI in particular. This increases the pressure on the MPC to raise rates earlier than the other major central banks. The pound has benefited from these developments and will continue to trade at robust levels.”
The pound rose 0.4 percent this week to $1.6865 at 5:07 p.m. London time yesterday after rising to $1.6920 on May 1, the highest level since August 2009. The U.K. currency strengthened 0.2 percent since April 25 to 82.20 pence per euro.
Sterling has climbed 5.5 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as the strengthening recovery fuels speculation the Bank of England will raise borrowing costs sooner than other central banks. The euro gained 2.1 percent and the dollar weakened 1 percent.
Adding to signs economic resurgence, a Markit Economics index will show growth in services output accelerated in April, according to the median forecast of analysts in a Bloomberg survey before the data is released on May 6. U.K. markets are closed for a public holiday on May 5.
“Markets are continuing to take a positive tone on sterling,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The data points are continuing to underpin stronger confidence and the market is continuing to maintain, and even extend, what are some sizable sterling longs.” A long position is a bet an asset will appreciate.
Benchmark 10-year gilt yields were little changed on the week at 2.64 percent. The price of the 2.25 percent bond maturing in September 2023 was at 96.77.
Gilts returned 3.3 percent this year through May 1, according to Bloomberg World Bond Indexes. German securities earned 3.2 percent and U.S. Treasuries gained 2.6 percent.
To contact the reporter on this story: Eshe Nelson in London at email@example.com