Pound Jumps Most in Seven Weeks With U.K. Growth Beating Peers

The pound jumped by the most in almost seven weeks versus the dollar, rallying from its lowest level in more than a year, as U.K. manufacturing expanded faster in November than economists predicted.

Sterling rose for the first time in three days against its U.S. counterpart and climbed versus 12 of its 16 major peers as the data added to evidence that the U.K. has one of the strongest economies in the developed world. While the Bank of England said mortgage approvals fell to the lowest in more than a year in October, the number exceeded the median of estimates in a Bloomberg News survey.

“The pound still seems to be something which in fundamental terms could be a buy,” said Stuart Bennett, head of Group of 10 currency strategy at Banco Santander SA in London. “You’ve still got an economy that is doing OK.”

The pound climbed 0.6 percent to $1.5732 at 4:48 p.m. London time, the biggest increase since Oct. 15. It slid earlier to 1.5586, the lowest level since September 2013. Sterling strengthened 0.3 percent to 79.36 pence per euro, having touched 79.77 pence, the weakest level since Nov. 21.

Bank of England Governor Mark Carney told lawmakers in London last week that increases in borrowing costs would likely be limited and gradual. Still, the pound is being supported as his counterparts in the European Central Bank and Bank of Japan expand stimulus. The U.K.’s main interest rate of 0.5 percent compares with an upper limit of 0.25 percent in the U.S. and 0.05 percent in the euro area.

U.K. Growth

Britain’s economy will expand 1.29 percentage points more than the average for the G-10 nations this year, according to Bloomberg surveys of economists. Output will increase 3.2 percent this year, the most among the Group of Seven countries, according to the latest World Economic Outlook released by the International Monetary Fund in October.

U.K. manufacturing growth unexpectedly accelerated in November to the fastest pace in four months. Markit Economics Ltd. said its Purchasing Managers’ Index rose to 53.5 from a revised 53.3 in October. A reading above 50 indicates expansion. Analysts forecast a reading of 53, according to the median estimate in a Bloomberg News survey.

The euro-area manufacturing PMI slid to 50.1 last month from 50.6 in October, Markit said. That compared with an initial estimate of 50.4 on Nov. 20.

Gains by sterling may be limited into next year before the U.K. holds parliamentary general elections in May, according to Morgan Stanley and HSBC Holdings Plc.

Pound Forecasts

Morgan Stanley also lowered its forecast for the pound against the dollar to $1.45 in the third quarter and $1.47 by December 2015, compared with previous predictions of $1.56 and $1.51, strategists led by Hans Redeker, London-based head of global currency strategy, wrote in a note dated yesterday. HSBC sees sterling at $1.49 by September and $1.48 in the fourth quarter, analysts including David Bloom, the global head of currency strategy, wrote on Nov. 27.

The pound has jumped about 3 percent from its low on Sept. 8 against developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. That was the weakest level since April, reflecting investors cutting wagers that the central bank will raise borrowing costs.

U.K. government bonds rose, with 10-year gilt yields falling three basis points, or 0.03 percentage point, to 1.90 percent. The 2.75 percent bond due in September 2024 gained 0.25, or 2.50 pounds per 1,000-pound face amount, to 107.55. The rate touched 1.86 percent, the lowest since May 2013, as slowing inflation across the world boosted demand for fixed-income assets. Thirty-year yields slid to a record-low 2.639 percent.

External Risks

Carney said last week “heightened” external risks are threatening the U.K. economy. The central bank will leave its benchmark interest rate unchanged on Dec. 4, according to a Bloomberg survey of economists. ECB officials announce their latest monetary policy decision the same day, with President Mario Draghi having said last month that buying euro-area sovereign debt, or quantitative easing, could be a policy tool.

Gilts earned 13 percent this year through Nov. 28, according to Bloomberg World Bond Indexes. German securities returned 9 percent and U.S. Treasuries 6 percent.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE