Pound Advances to 16-Month High Versus Euro as CPI Accelerates

The pound rose versus the euro, climbing to a 16-month high, as a report showed consumer-price inflation accelerated for the first time in 10 months in April.

U.K. government bonds declined, with 10-year gilt yields rising for a third day. The pound also climbed amid speculation the Bank of England will take steps to cool Britain’s housing market. Sterling’s advance represents the strength of the U.K. economy, and the currency can remain strong, according to Kames Capital, which oversees the equivalent of about $89 billion.

“We are trading at very strong levels on sterling against the euro,”said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “We have had very good news of the the U.K. lately. Today’s headline number was a tad higher than expected. It’s looking good for sterling.”

The pound appreciated 0.3 percent to 81.33 pence per euro at 5:02 p.m. London time after reaching 81.20 pence, the strongest level since January 2013. Sterling gained for a fourth day versus the dollar, climbing 0.2 percent to $1.6846.

Consumer prices rose an annual 1.8 percent last month, compared with 1.6 percent in March, today in London, exceeding the 1.7 percent median estimate of analysts in a Bloomberg News survey. That’s the first increase since June.

The U.K. currency gained 9.2 percent in the past 12 months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as the strengthening economy boosted bets the Bank of England will hasten plans to increase borrowing costs. The euro added 4.8 percent, while the dollar fell 2.2 percent.

U.K. ‘Dynamism’

“Sterling has been exceptionally strong and reflects the dynamism” of the U.K. economy, Stephen Jones, chief investment officer at Kames, a unit of Dutch insurer Aegon NV, said in a presentation at the firm’s Edinburgh headquarters today. “We continue to think sterling can remain strong. It should not be bet against in the current business cycle.”

Central bank policy makers said in their quarterly Inflation Report published last week that while the level of spare capacity in the economy had “narrowed slightly” in the past three months, there “remains scope to make greater inroads into slack before raising” borrowing costs. The Bank of England’s benchmark interest rate has been at a record-low 0.5 percent since March 2009.

Even so, with a growing number of analysts saying the property market is at risk of overheating, 67 percent of respondents to Bloomberg’s monthly survey of economists predict Bank of England Governor Mark Carney will take steps to cool real estate next month. Measures could range from forcing banks to hold more capital to tightening mortgage-approval criteria.

The 10-year yield increased two basis points, or 0.02 percentage point, to 2.61 percent. The rate climbed six basis points in the previous two days. The 2.25 percent gilt due September 2023 fell 0.19, or 1.90 pounds per 1,000-pound face amount, to 97.035.

Gilts returned 3.8 percent this year through yesterday, Bloomberg World Bond Indexes show. German bonds gained 4 percent and Treasuries earned 3.1 percent.

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