The pound reached the highest level in more than two months against the dollar and gilts rose as U.S. lawmakers remained deadlocked over a plan to raise the debt ceiling, increasing the relative appeal of U.K. assets. The pound also strengthened versus the euro, even as economists forecast a report due today will show U.K. factory orders fell in July. The dollar weakened against most of its major peers as President Barack Obama and Congress remained at odds over plans to raise the U.S. debt limit. “External factors are driving the pound, namely whether the U.S. will raise its debt ceiling,” said You-na Park, a currency strategist at Commerzbank AG in Frankfurt. “If we don’t see a result in the next few days, then this will continue to weigh on the dollar and the pound will strengthen.” The pound was little changed at $1.6411 as of 10:53 a.m. in London, after reaching $1.6439, the most since June 14. Sterling climbed 0.8 percent yesterday. It strengthened 0.2 percent to 88.25 pence per euro today and lost 0.3 percent to 127.48 yen. Today’s orders gauge, based on a survey of manufacturers conducted by the Confederation of British Industry, probably fell to -3 in July, from a month earlier, according to a Bloomberg survey of 14 economists. The report will be released at 11 a.m. The pound rose yesterday after data showed U.K. gross domestic product rose 0.2 percent in the second quarter, slowing from the previous three months’ 0.5 percent pace. That matched the median forecast of 32 economists in a Bloomberg News survey. Housing Demand “The growth data came in as expected, so we saw some kind of relief that the figure was not that bad, and the pound strengthened,” Park said. “If the U.S. debt issue is solved, then the market focus will shift back to economic data. If we see some more negative data, then this will be more negative for the pound.” U.K. demand for houses fell for a third month in June as waning consumer confidence and difficulties in getting a mortgage kept potential homebuyers off the market, the National Association of Estate Agents said today. The number of potential buyers registered with real estate agents fell to 263 in June from 275 the previous month, the report showed. Bank of England policy maker David Miles is due to give a speech at the London School of Economics at 6:30 p.m. Sterling is still down 8.5 percent in the last 12 months, making it the second-worst performer among 10 developed-market currencies after the U.S. dollar, according to Bloomberg Correlation-Weighted Currency Indexes. Interest-Rate Outlook Bank of England officials said this month that the weakness in the U.K. economy may persist “for longer than previously thought” as they kept the key interest rate at 0.5 percent. Seven of the bank’s nine-member Monetary Policy Committee, led by Governor Mervyn King, voted to keep the rate unchanged this month, saying that recent developments “reduced the likelihood that a tightening in policy would be warranted in the near term.” One official wanted more stimulus and two favored a rate increase. The central bank will keep the rate at 0.5 percent until the first quarter of next year, when it will increase it to 0.75 percent, according to a Bloomberg survey of 20 economists. The European Central Bank has raised its refinancing rate twice this year, to 1.5 percent, and is forecast to increase it to 2 percent by the end of the first quarter of next year, a separate survey shows. U.K. government bonds rose, pushing the yield on the 10- year gilt down four basis points to 3.03 percent. Two-year note yields declined two basis points to 0.69 percent. To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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