Pound Jumps Most in 2 Months on IMF Forecast, Output DataAnchalee Worrachate
The pound rose the most in two months as the International Monetary Fund raised its U.K. growth forecast and industrial output expanded, stoking bets the Bank of England will hasten interest-rate increases.
Sterling appreciated to the strongest level in a month versus the euro as a report showed wage growth accelerated to the fastest pace in seven years. The latest data and IMF forecast adds to evidence that the recovery in the British economy is strengthening and bolsters the case for the central bank, which meets this week, to boost borrowing costs. U.K. government bonds fell.
“The market is becoming more confident on the outlook for sterling,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There is a large consensus in the market regarding when the Bank of England will next move policy.”
Sterling rose 0.8 percent to $1.6744 at 4:33 p.m. London time, the steepest advance since Feb. 12. It reached $1.6823 on Feb. 17, the highest since November 2009. The pound gained for the first time in three days against the euro, appreciating 0.4 percent to 82.44 pence. It touched 82.33 pence, the strongest since March 6.
The U.K. economy will expand 2.9 percent in 2014 and 2.5 percent next year, the Washington-based IMF said in its World Economic Outlook published today. That compares with a January forecast of 2.4 percent and 2.2 percent, respectively. Still, it warned the recovery remains uneven and said the Bank of England should keep monetary policy accommodative.
The raised forecast means the IMF predicts the U.K. will expand the most among the Group-of-Seven economies this year, outpacing the U.S., which will grow 2.8 percent.
“The U.K. economy has turned the corner,” Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a telephone interview. “I’m sure there will be doubters out there, but evidence we’ve got so far suggests growth is well-entrenched and broad-based this time. It doesn’t look like another false dawn.”
The pound has “room to appreciate further to $1.70 in coming months,” Franulovich said.
Production surged 0.9 percent in February, compared with a 0.3 percent growth estimate of analysts in a Bloomberg News survey. An index of wage growth for full-time employees rose to 62.2 in March, the highest since July 2007, KPMG LLP and the Recruitment & Employment Confederation said.
The U.K. currency rallied 11 percent in the past 12 months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 0.3 percent and the euro appreciated 6.5 percent.
Futures traders increased their bets that the British currency will gain versus the dollar, according to the latest figures from the Washington-based Commodity Futures Trading Commission on April 4. The difference in the number of wagers by hedge funds and other large speculators on an advance in the currency compared with those on a drop, known as net longs, increased to 33,572 on April 1, the most since Jan. 4, 2013.
Gilts fell for the first time in four days before Bank of England policy makers meet tomorrow. All 50 analysts in a Bloomberg survey predict officials will keep the benchmark rate unchanged at a record-low 0.5 percent. The decision is due to be announced on April 10.
Benchmark 10-year yields rose three basis points, or 0.03 percentage point, to 2.70 percent. The 2.25 percent bond due September 2023 dropped 0.27, or 2.70 pounds per 1,000-pound face amount, to 96.305.
“Judging from the U.K. growth outlook, I suspect 10-year yields will reach 3 percent in the summer, one-to-three months ahead of Treasuries,” said Fabrizio Fiorini, chief investment officer at Aletti Gestielle SGR SpA in Milan. “We are very short on gilts.” A short position is a bet that an asset price will fall.
The yield on 0.75 percent index-linked gilts maturing in March 2034 was little changed at 0.01 percent after the Debt Management Office sold 1.3 billion pounds of the securities today. The auction attracted bids for 1.85 times the amount on offer.
The 20-year break-even rate rose two basis points to 3.34 percent. The rate, derived from the yield gap between gilts and index-linked bonds, reflects the pace of inflation investors expect over the life of the securities.
Gilts returned 2.9 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries gained 1.9 percent and German bonds rose 2.6 percent.