Pound Approaches 10-Month High as CBI Business Optimism Soars

  • U.K. factory production rose to two-decade high last quarter
  • GDP due Wednesday to offer latest clues for economic outlook

The pound rose for a third day versus the dollar after a Confederation of British Industry survey showed U.K. factory production reached a two-decade high in the last quarter as optimism about export orders climbed to the highest level since the 1970s.

Sterling strengthened against most of its 16 major peers, approaching the highest level since September versus the U.S. currency. The Office for National Statistics is due to release second-quarter growth data on Wednesday, which will be the latest insight into the U.K.’s economic outlook, while investors await the Bank of England’s monetary policy decision on Aug. 3.

U.K. government bonds fell for a second day as the Debt Management Office sold 2.5 billion pounds ($3.3 billion) of gilts due in July 2047.

  • GBP/USD rose 0.4% to 1.3077 as of 1:56 p.m. in London, after touching 1.3126 on July 18, the highest since Sept. 16
    • “Cable should be trading toward $1.35 most definitely within six months horizon,” Petr Krpata, Chief of EMEA FX Strategy at ING Bank, said before the CBI data. “From a valuation point of view, downside is limited and we have a bullish view on euro-dollar”
  • U.K. economy grew 0.3% in 2Q, according to median forecast of analysts in Bloomberg survey; up from 0.2% in the first three months of 2017
  • Bank of England Chief Economist Andy Haldane will speak later Tuesday under Chatham House rules, meaning any remarks can’t be attributed to him and no text will be released
    • BOE policy makers voted 5-3 last month to maintain interest rates at a record-low 0.25 percent and Haldane has indicated that he may start voting for a rate increase soon
  • DMO sold 2047 gilts at average yield of 1.827%, compared with 1.671% at previous auction on June 22; bid-to-cover ratio rose to 2.17 from 2.12 prior
    • Equivalent to around 50k gilt futures
  • GBP3.17b in coupon payments were being returned to investors on Monday, majority of these coupon payments (~GBP2b) are skewed to the 15y+ sector
  • Benchmark 10-year gilt yields +2bps to 1.21%

— With assistance by Anooja Debnath

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