The pound rose for a second day against the dollar as a report showed U.K. services expanded in July to the fastest pace in more than six years and beat analyst estimates, adding to signs the recovery is gathering pace.
Sterling gained for a third day versus the euro. U.K. government bonds declined, with the five-year yield rising for a fifth day before the country sells as much as 4.5 billion pounds ($6.9 billion) of the debt tomorrow. Bank of England Governor Mark Carney details plans for forward guidance on interest rates in the central bank’s quarterly Inflation Report due on Aug. 7.
“It’s surprising the foreign-exchange market for sure, to see how upbeat some of the data is,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “The U.K. is doing better than people expected and consequently the market is running short of the pound.”
The pound advanced 0.4 percent to $1.5351 at 12:09 p.m. London time after jumping 1.2 percent on Aug. 2, the biggest gain since June 6. Sterling appreciated 0.5 percent to 86.43 pence per euro.
A gauge of services output rose to 60.2 from 56.9 in June, Markit Economics and the Chartered Institute of Purchasing and Supply said in a statement in London today. The median prediction of 30 economists surveyed by Bloomberg was 57.4.
Measures of U.K. manufacturing and construction released last week rose more than analyst estimates. Britain’s economy will expand faster this year than previously forecast, the National Institute of Economic and Social Research said Aug. 2.
Consistent Numbers
“Near term, it looks like the numbers have been consistent, so that could continue to support the pound,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in London. “We have to worry about what’s coming up later this week with the Inflation Report on Wednesday. I don’t think the market will be terribly surprised about what it has to offer.”
Sterling has strengthened 1.4 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro rose 4.4 percent and the dollar gained 3.1 percent.
The 10-year gilt yield rose two basis points, or 0.02 percentage point, to 2.45 percent. The price of the 1.75 percent security due in September 2022 slipped 0.17, or 1.70 pounds per 1,000-pound face amount, to 94.35.
Gilt Sale
Five-year gilt rates increased four basis points to 1.36 percent after reaching 1.37, the most since July 9.
The last time the U.K. auctioned five-year securities, on June 20, it allotted 4.75 billion pounds at an average yield of 1.42 percent. Investors bid for 1.33 times the amount sold.
“My bias remains that I would come out of that auction with a long position in five-year gilts,” said Sam Hill, a U.K. rates strategist at Royal Bank of Canada in London. “In that part of the curve, what the Bank of England delivers will be supportive. They’ll make a commitment which underpins low rates. If we continue to get strong data which supports a recovery, that might mean higher yields further out the curve.”
The Bank of England kept its quantitative-easing program on hold this month and left its benchmark interest rate at a record-low 0.5 percent.
Carney joined the central bank last month from the Bank of Canada, where he introduced forward guidance in 2009.
Gilts lost 3.1 percent this year through Aug. 2, according to Bloomberg World Bond Indexes. Treasuries dropped 2.6 percent and German bonds declined 1.2 percent.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
