Pound Strengthens a Fourth Day Versus Euro as U.K. Output Climbs

The pound strengthened for a fourth day against the euro as data showed manufacturing growth in the U.K. unexpectedly accelerated last month, while it was close to stagnating in the 18-nation currency bloc.

Sterling advanced versus most of its 16 major counterparts. Separate purchasing managers’ indexes this week will show U.K. construction and services output also grew last month, according to surveys of analysts by Bloomberg. Bank of England policy makers will meet Nov. 5-6 to decide on interest rates. In the past three months, two officials have voted for higher borrowing costs. U.K. government bonds fell before the Debt Management Office sells 800 million pounds ($1.3 billion) of index-linked 2050 gilts tomorrow.

“Broadly the U.K. story remains reasonably constructive,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “If we are going to see evidence of continued reasonable growth expectations and the two PMIs to come will be hugely significant, if those represent anything like the topside risk we have seen in manufacturing, then sterling should continue relatively well.”

The pound gained 0.1 percent to 78.20 per euro at 4:28 p.m. London time after appreciating by as much as 0.4 percent earlier. It strengthened 0.8 percent in the previous three days. Sterling dropped 0.1 percent to $1.5974.

The U.K. currency could appreciate to 77.50 pence per euro this week, CIBC’s Stretch said.

Manufacturing Index

Markit Economics said its U.K. manufacturing PMI climbed to 53.2 from a revised 51.5 in September. The median forecast in a Bloomberg News survey of economists was for a decline to 51.4. A reading above 50 indicates expansion.

An equivalent gauge of euro-area output was at 50.6 last month, Markit said. While that’s up from 50.3 in September, it’s below a 50.7 estimate released on Oct. 23.

Ten-year gilt yields rose three basis points, or 0.03 percentage point, to 2.28 percent. The 2.75 percent bond due in September 2024 fell 0.265, or 2.65 pounds per 1,000-pound face amount, to 104.15.

Demand for very long duration government bonds is likely to increase for the rest of the year, according to analysts at Societe Generale SA. SocGen recommends long positions, or investments that anticipate a price increase, in July 2068 gilts versus 2045 bonds, analysts led by global head of fixed-income and foreign-exchange strategy Vincent Chaigneau wrote in a client note today.

Gilts returned 9.1 percent this year through Oct. 31, according to Bloomberg World Bond Indexes. Euro-area government securities gained 11 percent and U.S. Treasuries earned 4.9 percent.

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