The pound advanced for a seventh week against the dollar on speculation the U.K. economy is poised to recover from recession while the Federal Reserve expands monetary easing. Sterling rose to the highest level in more than a year against the greenback and has advanced 0.7 percent since the Fed said Sept. 13 it would buy $40 billion of mortgage bonds a month to cap borrowing costs. The pound strengthened against the euro for the first time in six weeks as investors sought U.K. assets as a haven amid speculation Spain will delay seeking aid that could help sooth turmoil in euro-region sovereign debt markets. Ten-year gilts advanced, snapping a two-week drop. “Dollar weakness is the main reason sterling is firmer now but the fact that it’s been able to gain against the euro suggests that diversification trades have been a theme,� said Jane Foley, a senior currency strategist at Rabobank International in London. “U.K. fundamentals have played an astonishingly small part in sterling’s performance.� The pound gained 0.2 percent to $1.6248 at 5:04 p.m. London time yesterday, after climbing to $1.6309, the highest since Aug. 31, 2011. The seven-week advance is the longest streak since the period ended Dec. 3, 2004. Sterling appreciated 1.2 percent to 79.95 pence per euro, after reaching 79.75 pence, the strongest level since Sept. 12. Fed Program The U.K. currency climbed against the dollar on “anticipation about what the Fed would do and then the aggressive nature of the quantitative easing program that they announced,� Rabobank’s Foley said. The pound rose even as the U.K. economy is estimated to contract 0.4 percent this year, according to Bloomberg forecasts. Analysts predict final second-quarter gross domestic product figures, set to be published on Sept. 27, will show a 0.5 percent contraction. Sterling’s gains were tempered as reports showed U.K. inflation slowed and retail sales declined. Data published Sept. 18 showed consumer prices rose 2.5 percent in August from the same month in 2011, compared with 2.6 percent in July. Retail sales, excluding fuel, fell 0.3 percent in August from July and were up 3.1 percent from the same month a year earlier, a separate report on Sept. 20 showed. The yield on 10-year gilts dropped 13 basis points, or 0.13 percentage point, in the week to 1.83 percent, after rising to 1.99 percent on Sept 17, the highest level since May. The 1.75 percent September 2022 security rose 1.175, or 11.75 pounds per 1,000-pound face amount to 99.235. Gilts have returned 2.7 percent this year through Sept. 20, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 2.5 percent and U.S. Treasuries earned 1.7 percent. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net. To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net.

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