Pound Rises as U.K. Data Beat Forecasts Before BOE Rate Decision

  • January factory PMI rises for the first time in three months
  • Sterling gains restrained as BOE likely to keep rates low

The pound rose against the dollar after a report showed an index of U.K. manufacturing unexpectedly rose in January.

While the British currency advanced versus all of its 16 major peers Monday, gains were limited before the Bank of England presents the Monetary Policy Committee’s new growth and inflation forecasts alongside its interest-rate decision on Feb. 4.

Markit Economics in London said its factory gauge, based on a survey of purchasing managers, climbed to 52.9 last month from a revised 52.1 in December. Economists had forecast a decline to 51.6 from a previously reported 51.9. A reading above 50 indicates expansion. Separate data showed U.K. mortgage approvals unexpectedly increased in December.

“Manufacturing data gave a boost” to sterling, said Ipek Ozkardeskaya, a markets analyst at London Capital Group Ltd. “Yet the pound clearly failed to gain enough momentum for a sustained recovery. The market remains a seller on rallies before Super Thursday,” she said, referring to the BOE’s policy announcement on Feb. 4.

The pound rose 0.8 percent to $1.4362 as of 4:38 p.m. London time, having earlier climbed as much as 1 percent. The U.K. currency fell to an almost seven-year low of $1.4080 on Jan. 21. Sterling strengthened for a third day versus the euro, gaining 0.4 percent to 75.79 pence.

The pound’s advance came after a 3.3 percent drop against the dollar in January, the biggest monthly decline since March. All 41 economists in a Bloomberg survey predict the BOE will keep its key interest rate at a record low of 0.5 percent, where it’s been since March 2009.

Rate Outlook

Forward contracts based on the sterling overnight index average, or Sonia, aren’t fully pricing in a 25-basis-point increase to the BOE’s official bank rate until after March 2017.

U.K. government bonds fell for the first time in three days, with the 10-year yield climbing the most this year after earlier dropping to the lowest level since April. The yield rose seven basis points, or 0.07 percentage point, to 1.63 percent. The 2 percent gilt due in September 2025 dropped 0.625, or 6.25 pounds per 1,000-pound face amount, to 103.28. The yield declined to 1.55 percent earlier.

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