The pound strengthened to above $1.63 for the first time since January 2010 after an unexpected rise in U.K. house prices and manufacturing sentiment at a record high boosted speculation that interest rates may rise. Sterling gained as the Nationwide Building Society said the average cost of a U.K. home rose 0.3 percent in February, compared with a 0.2 percent contraction predicted in a Bloomberg survey of economists. An index of U.K. manufacturing stayed at 61.5 last month, matching a record high reached in January, Markit Economics and the Chartered Institute of Purchasing and Supply said in a report today. “The interest-rate argument is pushing sterling higher,” said David Bloom, global head of foreign-exchange strategy at HSBC Holdings Plc in London. “We would resist that temptation. We think sterling is going to retrace its gains. If they raise interest rates it’ll be a mistake.” The pound gained 0.1 percent to $1.6270 as of 12:11 p.m. in London, and was little changed at 84.98 pence per euro. It strengthened 0.5 percent to 133.68 yen and 0.3 percent to 1.5141 Swiss francs. Britain’s currency has advanced 4.3 percent against the dollar this year amid mounting speculation that the Bank of England will raise interest rates from a record low 0.5 percent to quell inflation. Consumer-price growth accelerated to an annual 4 percent in January, the 14th consecutive month above the government’s 2 percent target. MPC Split Bank of England policy maker Andrew Sentance has led calls for the central bank to raise its benchmark interest rate since June and last month voted for a 50 basis-point increase to 1 percent. Minutes from the central bank’s Feb. 10 meeting showed policy maker Spencer Dale joined Sentance and Martin Weale in voting for higher borrowing costs. Dale and Weale favored a 25 basis point rise. The central bank’s next rate decision is due on March 10. Two-year notes fell for the first time in four days, lifting the yield by three basis points to 1.43 percent. The 4.5 percent note due March 2013 fell 0.07, or 70 pence per 1,000- pound face amount, to 106.08. Ten-year gilt yields, typically less responsive to short-term interest rate expectations, climbed four basis points to 3.64 percent. Money markets signal policy makers will probably raise the key rate by about 68 basis points by year-end, according to sterling overnight index average forwards, Tullett Prebon Plc data show. So-called Sonia rates indicate an increase of about 21 basis points in May. The U.K. sold 4 billion pounds of 2 percent securities due in January 2016 today at an average yield of 2.658 percent compared with 2.701 percent at a previous auction of the debt on Feb. 1. Investors bid for 1.79 times the securities on offer, down from 1.93 at the earlier sale. To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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