Pound Advances Against Euro as Osborne Boosts Growth Outlook

  • Sterling gains versus most of its major counterparts
  • DMO leaves gilt issuance for fiscal 2015/16 unchanged

The pound strengthened for the first time in three days versus the euro as Chancellor of the Exchequer George Osborne increased the government’s forecast for U.K. growth next year.

That supported market perceptions that the Bank of England’s monetary policy will diverge with the European Central Bank, which is widely predicted to boost stimulus next week. ECB policy makers, due to meet Dec. 3, are considering options such as two-tiered bank charges and broader bond purchases as they seek to revive inflation in the currency bloc, Reuters reported on Wednesday, citing officials it did not name.

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Sterling gained versus most of its 16 major peers. The U.K. economy will grow by 2.4 percent this year and in 2016, Osborne said Wednesday as he set out his spending priorities for the next five years. The forecasts, by the Office for Budget Responsibility, compare to July growth predictions of 2.4 percent this year and 2.3 percent next.

“The economic performance looks relatively solid compared with the euro area,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “The main driver today has been the euro weakness across the board, due to the speculation about more stimulus from the ECB.”

The pound appreciated 0.4 percent to 70.31 pence per euro as of 4:12 p.m. London time, after weakening 0.7 percent over the previous two days. Sterling was little changed at $1.5086, having dropped to $1.5054 on Tuesday, the lowest since Nov. 9.

Debt Sales

U.K. government bonds fell even as the Debt Management Office said that a 4.5 billion-pound increase in the government’s financing requirement in the year through March 2016 would be funded by an increased net sale of Treasury bills rather than gilts.

Benchmark 10-year yields rose two basis points, or 0.02 percentage point, to 1.89 percent, having dropped to 1.83 percent on Tuesday, the lowest this month. The 2 percent gilt due in September 2025 dropped 0.155, or 1.55 pounds per 1,000-pound face amount, to 101.02.

U.K. sovereign securities earned 0.5 percent in the past month, compared with a 0.9 percent loss for Treasuries, according to Bloomberg World Bond Indexes.

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