Pound Rises to One-Week High After U.K. Jobs Report; Gilts Fall

The pound strengthened for a third day against the dollar after a government report showed U.K. jobless claims dropped the most in 16 years last month amid signs the labor market is improving.

Sterling reached a one-week high versus the greenback as the jobless rate held at 7.7 percent in the three months through August. Bank of England Governor Mark Carney has said policy makers won’t consider raising the key interest rate from a record-low 0.5 percent until unemployment falls to 7 percent. U.S. Senate leaders are struggling to lock down an agreement to end the fiscal impasse that threatens a default by the world’s largest economy. U.K. 10-year bonds fell for a third day.

“The follow-through in the pound is pretty limited,” said David Simmonds, head of currency and emerging-markets strategy at Royal Bank of Scotland Group Plc. in London. “Markets are absolutely fixated with watching what’s going on in Washington.”

The pound advanced 0.1 percent to $1.6014 at 1:50 p.m. London time after climbing to $1.6059, the highest level since Oct. 9. The U.K. currency dropped 0.1 percent to 84.66 pence per euro after depreciating to 85.10 pence on Oct. 11, the weakest since Sept. 2.

Claims for jobless benefits fell 41,700, the most since June 1997, the Office for National Statistics said. The decline exceeded the 25,000 median forecast in a Bloomberg survey of economists. Unemployment fell by 18,000 to 2.49 million people in the three months through August.

Jobless Rate

“Things are going the Bank of England’s way, with stronger employment growth not being reflected in a falling ILO unemployment rate,” David Tinsley, an economist at BNP Paribas SA in London, wrote in an e-mailed note to clients.

The jobless rate, as measured by International Labour Organisation standards, was unchanged from the quarter through July, the statistics office said.

“Achieving the 7 percent target is still going to be a challenge,” strategists at Morgan Stanley including Hans Redeker in London wrote in a research note. “Hence, we would expect any pound gains to remain limited.”

The pound appreciated 3.6 percent in the past three months, the best performer after New Zealand’s dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 0.7 percent, while the U.S. dollar slid 2.5 percent.

The benchmark 10-year gilt yield climbed four basis points, or 0.04 percentage point, to 2.84 percent after rising to 2.85 percent, the highest level since Sept. 24. The 2.25 percent bond due in September 2023 fell 0.32, or 3.20 pounds per 1,000-pound face amount, to 94.915.

The Debt Management Office is scheduled to auction 4.75 billion pounds of five-year gilts tomorrow.

Gilts lost 3.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries dropped 2.8 percent and German bunds declined 2.3 percent.

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