Pound Advances to Three-Week High as Retail Sales Beat Forecasts
The pound rose to a three-week high against the dollar after a government report showed U.K. retail sales increased more in February than economists forecast.
Sterling appreciated versus all but three of its 16 major counterparts as the data damped speculation the Bank of England will add to monetary stimulus that tends to debase a currency. The pound climbed to the strongest in five weeks against the euro as a contraction in German manufacturing and an impasse over a bailout for Cyprus spurred demand for alternatives to the single currency. U.K. government bonds advanced.
“It’s certainly good news for the pound bulls,” said Kathleen Brooks, research director in London at Forex.com, a unit of online currency-trading company Gain Capital Holdings Inc. (GCAP) “The retail sales were much better than expected. It really was very positive.”
The pound advanced 0.5 percent to $1.5171 at 4:37 p.m. London time after rising to $1.5210, the highest level since Feb. 28. The U.K. currency gained 0.6 percent to 85.12 pence per euro.
Retail sales including fuel jumped 2.1 percent from January, the Office for National Statistics said, exceeding the 0.4 percent median forecast of economists in a Bloomberg News survey. The U.K. had its smallest February budget deficit since 2008, a separate government report showed.
Minutes of the central bank’s March 6-7 meeting published yesterday showed some policy makers saying further monetary easing may cause an “unwarranted depreciation of sterling.” Chancellor of the Exchequer George Osborne kept the central bank’s inflation target at 2 percent in his budget yesterday.
“The minutes were less dovish than expected, which suggests that further quantitative easing is not imminent,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “We are seeing a modest pick-up in safe-haven demand for the pound given the renewed uncertainty in Europe.”
The pound appreciated to the strongest since Feb. 11 versus the euro as a German index based on a survey of purchasing managers in the manufacturing industry dropped.
It also rose as the European Central Bank said it may cut Cyprus’s banks off from emergency funds after March 25 unless the nation agrees on a bailout with international creditors. Russia rebuffed a request for aid, the island nation’s Finance Minister, Michael Sarris, said in an interview on Antenna TV.
The yield on the 10-year gilt rose two basis points to 1.86 percent after rising as much as three basis points. The 1.75 percent bond due in September 2022 gained 0.15, or 1.50 pounds per 1,000-pound face amount, to 99.07.
U.K. government bonds returned 1 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 0.4 percent and Treasuries fell 0.4 percent.
The pound may encounter “another big wave of resistance” at $1.5280 should it climb above $1.5220, Forex.com’s Brooks said. Sterling hasn’t traded above $1.5280 since Feb. 22. In technical analysis, resistance refers to an area on a chart where sell orders may be clustered.
Sterling has still weakened 4.6 percent this year, the second-worst performer after the yen among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 0.7 percent and the dollar rose 3.1 percent.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at email@example.com