Pound Gains as Manufacturing Expands for 15th MonthAnchalee Worrachate
The pound advanced for the first time in seven days against the euro as a report showed a measure of U.K. manufacturing output expanded for a 15th month in May, boosting demand for Britain’s currency.
Sterling strengthened versus 15 of its 16 major peers before the Bank of England and the European Central Bank announce monetary policy on June 5. The pound was little changed against the dollar as separate data showed mortgage approvals fell to a nine-month low and futures traders increased their bets that sterling will appreciate against the U.S. currency. U.K. 10-year government bonds declined for a second day.
“The pound has further to gain,” said Eimear Daly, head of market analysis at Monex Europe Ltd. in London. “The market is crowded with long sterling positions and any weakness in data will encourage some profit taking, but that doesn’t change our view that the U.K. has a robust economic recovery and that the Bank of England will probably be the first major central bank to raise rates.” A long position is a bet an asset will rise.
The pound strengthened 0.2 percent to 81.22 pence per euro at 4:18 p.m. London time after declining 0.5 percent in the previous six days. Sterling was at $1.6755 after rising 0.3 percent in the prior two sessions.
Markit Economics said its manufacturing index, based on a survey of purchasing managers, was at 57 in May, compared with a reading of 57.3 in April, remaining above the 50 level that signifies growth.
The British Chambers of Commerce raised its U.K. forecasts last week and the Confederation of British Industry said its monthly growth index is at a record high. While economists in a Bloomberg News survey predict the Bank of England will keep its key interest rate at a record-low 0.5 percent this week, some officials have said the strengthening recovery is making the decision on when to tighten policy “more balanced.”
Mortgage approvals fell to 62,918 from a revised 66,563 in March, the Bank of England said. That’s the third monthly decline after they reached a six-year high in January. Today’s report also showed business lending fell 2.4 billion pounds in April.
Banks have toughened criteria in recent months and new rules came into force in April requiring borrowers to prove they can afford repayments even when interest rates rise. Today’s report adds to signs of a possible easing in the housing market as BOE financial-stability officials prepare to meet this month to decide if they need to take action to cool property growth.
The pound has appreciated 9.4 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as a strengthening U.K. economy boosted speculation the Bank of England will raise rates sooner than policy makers anticipated. The euro gained 3.3 percent, while the dollar weakened 1.8 percent.
Futures traders increased their bets that the pound will gain against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on an advance in the pound compared with those on a drop, so-called net longs, was 35,304 on May 27, compared with 33,090 a week earlier.
The 10-year gilt yield increased four basis points, or 0.04 percentage point, to 2.61 percent. The 2.25 percent bond due in September 2023 fell 0.31, or 3.10 pounds per 1,000-pound face amount, to 97.065. The rate dropped nine basis points last month, the biggest decline since January.
Gilts returned 3.9 percent this year through May 30, according to Bloomberg World Bond Indexes. Treasuries earned 3.4 percent and German securities gained 4.2 percent.