Pound Emerges as Biggest Winner of Greece Deal on Rates OutlookDavid Goodman
The pound is leading the way in currency markets in the wake of the Greek bailout agreement.
With Greece pulling back from the precipice of a euro exit, traders are switching their focus to the U.K. economy. Reports are due this week which, according to analysts, will show average earnings and employment climbed in the three months through May, bolstering the case for higher interest rates. That’s boosting sterling, which strengthened versus all of its 16 major peers on Monday, while damping demand for U.K. government bonds and short-sterling futures.
“We’ve got Greece out of the way and what it means is that markets can focus on idiosyncratic risks, not big systemic risks,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “There are a lot of releases coming for the U.K. this week. If they come out at or above expectations sterling could get a boost.”
The pound gained less than 0.1 percent to $1.5523 as of 4:14 p.m. London time, after sliding for the past three weeks. It reached $1.5930 on June 18, the highest level since November. Sterling strengthened 1.3 percent to 70.96 pence per euro.
While Britain’s currency has been falling against the dollar in recent weeks, it’s climbed versus its other Group-of-10 peers. The pound rose 6 percent against a basket tracked by Bloomberg Correlation-Weighted Indexes in the past three months, the best performance in the group.
Benchmark 10-year gilt yields rose four basis points, or 0.04 percentage point, to 2.12 percent. The 5 percent bond due in March 2025 fell 0.39, or 3.90 pounds per 1,000-pound face amount, to 125.02.
Implied yields on short-sterling futures contracts expiring in June 2016 rose added basis points to 1.01 percent.
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Traders now expect the Bank of England to increase interest rates by 25 basis points in May 2016, compared with July on Friday, according to forward contracts based on the sterling overnight index average, or Sonia.
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