The pound posted its biggest weekly gain versus the dollar in almost two years as data signalling U.K. economic strength overshadowed concern caused by a looming election that’s still too close to call.
Sterling strengthened against 13 of its 16 major counterparts this week as an Office for National Statistics report on Friday showed accelerating U.K. wage growth. That capped a week in which data signaled retail sales rose last month. That’s cementing the Bank of England’s status as the next central bank most likely to raise interest rates after the Federal Reserve. Peers including the European Central Bank and the Swiss National Bank are meanwhile injecting more stimulus.
“Economic performance has probably been better than expectations and the political performance probably has not been as bad as expected, and that is causing this sterling strength,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “What the market has not really been prepared for has been the macroeconomic data that has been pretty encouraging in the U.K.”
The pound rose 2.1 per cent this week to $1.4978 as of 5 p.m. London time on Friday, when it touched $1.5054, the highest since March 18. That’s the biggest weekly gain versus the U.S. currency since June 7, 2013. Sterling appreciated 0.4 per cent from April 10 to 72.16 pence per euro.
Pound Rally
Since falling to an almost five-year low of $1.4566 on April 13, partly on concern that next month’s general election will fail to produce a clear winner, the pound has rallied 2.8 per cent. Volatility also eased, after a gauge of anticipated price swings over the coming month versus the dollar reached the highest since June 2010 last week.
The volatility gauge fell 10 basis points, or 0.10 percentage point, to 11.91 percent on Friday, after climbing to 13.64 per cent on April 9.
According to the last labour-market report before the May 7 election, the claimant count fell for a 29th month in March to 772,400, the lowest since 1975. Basic pay growth accelerated to 1.8 per cent in the three months through February. Sales jumped 3.2 per cent in March, the British Retail Consortium and KPMG in London said on Tuesday.
The economy is overshadowing the May 7 election in which polls put the Conservative Party and Labour neck-and-neck.
Bond markets are focused more on when BOE Governor Mark Carney and his Monetary Policy Committee might end more than six years of record-low interest rates, with U.K. government securities trailing behind their euro-area counterparts. Gilts have outperformed U.S. Treasuries this year, as investors bet that the Fed will move first in raising rates.
The minutes of the central bank’s April 9 policy decision are scheduled for release on Wednesday in London.
Gilts earned 2.1 per cent this year through Thursday, according to Bloomberg World Bond Indexes. That compares with an average 4.5 per cent return for euro-area government securities and 2 per cent for Treasuries.
Benchmark 10-year yields were little changed at 1.58 per cent this week. The price of the 5 per cent gilt due in March 2025 was 131.13 per cent of face value.
News by Bloomberg, edited by ESM
