Pound Advances to One-Week High as Retail Sales Gain; Gilts Fall

The pound rose to the strongest in more than a week against the dollar after an industry report showed U.K. retail sales growth accelerated in January, adding to evidence the recovery is gaining momentum.

Sterling advanced versus 12 of its 16 major counterparts amid speculation that an improving economy will prompt the Bank of England to raise interest rates sooner than it currently anticipates. The pound stayed higher versus the dollar as Federal Reserve Chairman Janet Yellen said the U.S. labor-market recovery was “far from complete.” U.K. government bonds fell for a second day before the central bank releases new forecasts for economic growth and consumer prices tomorrow.

“If anything, the economic backdrop in the U.K. has improved,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “I’m still upbeat and looking for the pound higher.”

The pound rose 0.4 percent to $1.6464 at 5:04 p.m. London time after advancing to $1.6487, the highest level since Jan. 31. The U.K. currency gained 0.3 percent to 82.92 pence per euro after appreciating to 81.68 pence on Jan. 22, the strongest since January 2013.

The British Retail Consortium said like-for-like retail sales jumped 3.9 percent from a year earlier after increasing 0.4 percent in December. Economists surveyed by Bloomberg News forecast an increase of 0.8 percent.

Economists forecast an industry report tomorrow will show an index of house prices climbed to match the highest level since 2002, while data the following day will indicate construction output rebounded in December, according to Bloomberg News surveys.

Best Performer

Sterling has strengthened 9 percent in the past 12 months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 5.2 percent and the dollar gained 3.1 percent.

While U.S. growth has picked up, “the recovery in the labor market is far from complete,” Yellen said in the text of remarks to the House Financial Services Committee. “The number of people who are working part time but would prefer a full-time job remains very high.”

The benchmark 10-year gilt yield climbed two basis points, or 0.02 percentage point, to 2.74 percent after dropping to 2.64 percent on Feb. 5, the lowest since Nov. 5. The 2.25 percent bond due in September 2023 fell 0.185, or 1.85 pounds per 1,000-pound face amount, to 95.885.

Forward Guidance

Bank of England Governor Mark Carney is due to present an updated version of his forward-guidance policy along with tomorrow’s quarterly Inflation Report.

Officials began working on revised guidance after the strongest growth since 2007 sent unemployment tumbling. The jobless rate stood at 7.1 percent in the three months through November, just above the 7 percent level that Carney and his colleagues identified in August as the threshold for considering a rate increase.

The U.K. today sold 1.3 billion pounds of inflation-linked bonds due in March 2024 at a real yield of minus 0.106 percent. It last sold the securities on Sept. 3 at minus 0.159 percent.

Gilts returned 2 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries gained 1.8 percent and German securities rose 1.9 percent.

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