Pound Posts Biggest Weekly Gain Versus Euro Since 2011

The pound rose for a third day against the euro, set for its biggest weekly gain in two years, amid bets the Bank of England will refrain from extending its stimulus program in contrast to its European counterpart.

Sterling appreciated versus all but one of its 16 major counterparts before U.K. reports next week that economists said will show producer prices rose in January and retail sales increased. Future Bank of England Governor Mark Carney said yesterday that current monetary policy may be enough to help the economy, while European Central Bank President Mario Draghi said the region’s policy may “remain accommodative.” U.K. government bonds were little changed.

“We might see a stronger sterling against the euro,” said Eimear Daly, a currency-market analyst at Monex Europe Ltd. in London. “The market had priced in aggressive easing from Carney and they were probably disappointed from what they saw yesterday. The move was compounded by what we saw from Draghi.”

The pound appreciated 0.9 percent to 84.53 pence per euro at 4:31 p.m. in London after reaching 84.47 pence, the strongest level since Jan. 24. It has gained 2.8 percent this week, the most since the period ended Jan. 7, 2011. The U.K. currency rose 0.6 percent to $1.5814.

Investors should sell the euro against the pound, according to analysts at Citigroup Inc. and Standard Bank Plc.

‘Move Lower’

The euro-pound exchange rate “could extend its move lower from here,” Valentin Marinov, the London-based head of European Group of 10 foreign-exchange strategy at Citigroup, wrote in an e-mailed note today. “Absent further significant deterioration in the U.K. data, the BOE need not be moved to add to its stimulus. This could encourage investors to take off some sterling shorts and support the pound.”

A short position is a bet an asset will fall. Investors should sell the euro until it weakens to 82 pence, Marinov said.

Steven Barrow, head of Group of 10 research at Standard Bank in London, recommends the same trade, targeting 82.80 pence, he wrote in an e-mailed note today.

Bank of England policy makers yesterday left the benchmark interest rate at a record-low 0.5 percent and held the asset-purchase target at 375 billion pounds. Draghi suggested the euro’s gains may damp inflation, a signal further interest-rate cuts remain a possibility.

Pound’s Gain

The pound has gained 1.9 percent this week, the best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro dropped 1.2 percent and the dollar advanced 1 percent.

U.K. producer output prices climbed 0.2 percent last month, after falling 0.1 percent in December, according to a Bloomberg survey before the Office for National Statistics releases the figures on Feb. 12. Retail sales climbed 0.5 percent, a separate survey showed ahead of the data on Feb. 15.

The benchmark 10-year gilt yielded 2.09 percent after rising to 2.17 percent on Feb. 4, the highest level since April 20. The 1.75 percent bond due in September 2022 traded at 97.04.

Gilts have lost 2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds dropped 1.3 percent and Treasuries fell 0.8 percent.

Before it's here, it's on the Bloomberg Terminal.