Pound Rises as Growth Outlook Improves Before BOE August Meeting

The pound advanced for a third week versus the dollar as economic data signaling the U.K. recovery is strengthening boosted demand for the currency.

Sterling rose to the strongest in a month after the Office for National Statistics said on July 25 gross domestic product increased 0.6 percent in the second quarter from 0.3 percent in the first three months of the year. The Bank of England will announce next week its latest monetary policy decision, the second under the leadership of Governor Mark Carney, before issuing its quarterly Inflation Report on Aug. 7. Gilts declined for the first time in three weeks.

“The data has continued to be supportive for the pound,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The market’s now thinking the most likely revisions for growth could be to the topside. Carney is likely to err on the easier side of policy.”

The pound rose 0.8 percent in the week to $1.5381 at 5:33 p.m. London time yesterday, after climbing to $1.5435 on July 25, the strongest level since June 26. The U.K. currency fell 0.3 percent to 86.33 pence per euro after touching 85.82 pence on July 23, the strongest since July 10.

The first- and second-quarter economic expansion mark the first back-to-back periods of growth since 2011. Strengthening labor-market and retail-sales data in the past month have added to signs that the economy is on the mend, while a separate report this week showed new orders at U.K. factories rose to the highest in seven months in July.

Future Rates

The central bank will maintain its asset-purchase target at 375 billion pounds and interest rates at 0.5 percent when the Monetary Policy Committee meets on Aug. 1, according to economist estimates in Bloomberg surveys. Also, Carney is scheduled to explain his approach to outlining the future path for interest rates with the Aug. 7 Inflation Report.

A gauge of U.K. manufacturing increased for a fifth month in July, according to economist forecasts before the data next week.

Sterling rose 0.5 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro added 3.3 percent and the dollar climbed 1.2 percent.

Benchmark 10-year gilt yields climbed five basis points, or 0.05 percentage point, in the week to 2.33 percent, the biggest gain since the five days ended June 21. The 1.75 percent security due in September 2022 fell 0.38, or 3.80 pounds per 1,000-pound face amount, to 95.24.

Gilts pared declines after the Treasury said yesterday that Jon Cunliffe, a former adviser to Prime Minister David Cameron, would become deputy governor for financial stability at the Bank of England.

Gilts handed investors a loss of 3.1 percent this year through July 24, according to Bloomberg World Bond Indexes. German bunds fell 1.3 percent and Treasuries lost 2.6 percent.

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