Pound Advances as U.S. Job Growth Trails Forecasts; Gilts Rise

The pound strengthened the most in almost two weeks against the dollar after a U.S. report showed employers added fewer jobs last month than analysts forecast, damping demand for the American currency.

Sterling rose versus all except two of its 16 major counterparts after an industry group said the British economy will grow faster than previously estimated as higher house prices boost consumer spending. The Bank of England has said it will consider raising interest rates if the jobless rate drops to 7 percent. U.K. government bonds advanced.

“The U.S. payrolls report was slightly weaker than expected and the pound is higher,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The fundamentals of the U.K. remain supportive and we think that will prompt the Bank of England to consider raising rates early next year. That remains a positive factor which continues to support the pound.”

The pound rose 0.4 percent to $1.6394 at 4:28 p.m. London time, the biggest advance since Jan. 27. The U.K. currency gained 0.3 percent to 83.04 pence per euro after depreciating to 83.50 pence yesterday, the weakest since Dec. 31.

The U.K. economy grew 0.8 percent in the three months through January, the National Institute of Economic and Social Research said in a statement today, adding it expects gross domestic product will expand 2.5 percent this year. The economy grew 0.7 percent in the fourth quarter of 2013.

‘Upbeat’ Outlook

“We are upbeat about the U.K. economic outlook and the pound,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “The Bank of England is probably going to be the first central bank in the developed market to raise interest rates.”

The U.K. jobless rate dropped to 7.1 percent in the three months through November, just 0.1 percentage point from the central bank’s threshold for considering a rate increase. Bank of England Governor Mark Carney says he’s in no rush to end emergency stimulus, and the Monetary Policy Committee kept the benchmark rate at 0.5 percent yesterday.

U.S. employers added 113,000 workers last month, following a revised 75,000 increase in December, the Labor Department said in Washington. The median forecast of economists in a Bloomberg survey was for an additional 180,000 jobs.

Sterling has appreciated 8.7 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 5.5 percent and the dollar strengthened 3.7 percent.

The 10-year gilt yield fell four basis points, or 0.04 percentage point, to 2.71 percent after declining to 2.64 percent on Feb. 5, the lowest level since Nov. 5. The 2.25 percent bond maturing in September 2023 rose 0.29, or 2.90 pounds per 1,000-pound face amount, to 96.13.

Gilts returned 1.9 percent this year through yesterday as signs the global recovery is slowing boosted demand for the safest fixed-income assets. Treasuries gained 1.6 percent and German securities advanced 1.8 percent, according to Bloomberg World Bond Indexes.

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