Pound Rises to 12-Week High as Osborne Says Economy Recovering
The pound rose to its highest level versus the dollar in 12 weeks as U.K. Chancellor of the Exchequer George Osborne said Britain’s economy is turning a corner and is in the early stages of a recovery.
Sterling was within 0.5 percent of a seven-month high versus the euro before a report on Sept. 11 economists said will show U.K. jobless claims fell last month. Unemployment held at 7.8 percent in July, according to a separate Bloomberg survey, above the Bank of England’s 7 percent threshold for assessing interest rates. Gilts were little changed before the Debt Management Office sells 6.5 billion pounds ($10.2 billion) of government bonds due in 2023 and 2044 this week.
“I am optimistic about sterling,” said Steve Barrow, the head of Group-of-10 research at Standard Bank Plc in London. “The habit has been for U.K. data to come out stronger than expectations and so you are more likely to run with a position in the currency. The momentum is with employment.”
The pound rose 0.6 percent to $1.5722 at 4:33 p.m. London time after advancing to $1.5733, the highest since June 17. Sterling was little changed at 84.30 pence per euro after appreciating to 83.92 pence on Sept. 6, its strongest level since Jan. 24.
The pound has risen 7.3 percent in the past six months, the best performer among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes, amid optimism U.K. growth is accelerating. The dollar gained 1.3 percent and the euro advanced 3.4 percent.
“These are still the early stages of recovery,” Osborne said today in London. “Avoiding an unintentional and premature tightening of financial conditions,” while “staying the course with our deficit-reduction plan” will help counter domestic risks to growth.
Osborne’s comments come a month after Bank of England Governor Mark Carney signaled interest rates won’t rise before late 2016. While investors are betting that rates will increase before then, the chancellor said the central bank’s message is getting through to consumers and executives and will help strengthen confidence.
“Some have interpreted more recent increases in gilt yields as a sign that forward guidance has somehow failed, but that is, I believe, a misunderstanding,” Osborne said. Recent market movements “vindicate the need for guidance: the counterfactual would have been even bigger increases in yields in response to positive economic data,” he said.
Benchmark 10-year gilts yielded 2.94 percent after reaching 3.01 percent on Sept. 5, the highest since July 2011. The price of the 2.25 percent security due September 2023 was at 94.05.
The U.K. is scheduled to sell 2.75 billion pounds of 30-year bonds tomorrow and 3.75 billion pounds of 10-year gilts on Thursday. The debt office last auctioned benchmark 10-year securities on July 2 at an average yield of 2.584 percent and allotted 30-year bonds on July 11 at 3.553 percent.
Short-sterling futures rose as investors pared bets that borrowing costs will increase. The implied yield on the contract expiring in September 2016 fell three basis points to 2.40 percent.
Gilts lost 4.5 percent this year through Sept. 6, according to Bloomberg World Bond Indexes, underperforming German securities, which dropped 2.6 percent, and Treasuries, which declined 4 percent, the indexes show.
To contact the reporter on this story: Neal Armstrong in London at firstname.lastname@example.org