Pound Advances Most in Five Weeks Amid Recovery Signs, Fed Bets

The pound rose the most in five weeks versus the dollar as investors bet the U.S. debt-ceiling debate will prompt the Federal Reserve to maintain asset purchases that tend to weaken a currency.

Sterling strengthened for the first time in three weeks against the euro as data showed U.K. retail sales increased more than analysts forecast last month and jobless claims fell in September by the most in 16 years, signaling the U.K. economy is gaining momentum. U.S. President Barack Obama signed into law a measure ending the 16-day government shutdown and extending the nation’s borrowing authority until early next year, averting a default. U.K. government bonds advanced for a second week.

“Sterling outperformance this week was more a case of dollar weakness rather than sterling strength as speculation the Federal Reserve will delay tapering weighs on the U.S. currency,” said Peter Kinsella, senior currency strategist at Commerzbank AG in London. “That said, the U.K. data picture is still pretty constructive, so further upside towards $1.64 should not be discounted.”

The pound rose 1.45 percent in the week to $1.6188 as of 4:53 p.m. London time yesterday, the biggest gain since the five-day period ended Sept. 13. It rose as high as $1.6225 yesterday, the most since Oct. 3. Sterling gained 0.4 percent in the week to 84.60 pence per euro.

The pound appreciated 5.1 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 4 percent, while the dollar weakened 1.4 percent.

Retail Sales

Chicago Fed President Charles Evans said on Oct. 17 the U.S. central bank shouldn’t begin reducing the pace of its $85 billion of monthly asset purchases as the data used to gauge the economy’s health stopped during the government shutdown.

An Oct. 17 report showed U.K. retail sales including fuel increased 0.6 percent from August, when they declined 0.8 percent. The median forecast of economists in a Bloomberg News survey was for a 0.4 percent gain. Claims for U.K. unemployment benefit fell 41,700, the most since June 1997, the Office for National Statistics said Oct. 16. The decline exceeded the 25,000 drop forecast by analysts.

Benchmark 10-year gilt yields fell two basis points, or 0.02 percentage point, to 2.71 percent. The 2.25 percent bond maturing September 2023 rose 0.205, or 2.05 pounds per 1,000-pounds face amount, to 96.01.

A report next week will show the U.K. economy grew 0.8 percent in the third quarter from 0.7 percent previously, according to the median estimate of analysts in a Bloomberg News survey. The Bank of England is scheduled on Oct. 23 to publish minutes from this month’s Monetary Policy Committee meeting. The Debt Management Office is scheduled to sell bonds maturing in 2068 via banks next week.

U.K. government bonds lost 3.2 percent this year through Oct. 17, according to Bloomberg World Bond Indexes. Treasuries dropped 2.2 percent and German securities declined 2 percent.

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