The pound had its biggest weekly gain in a year and U.K. government bonds slid on evidence of an improving British economy.
With manufacturing and construction expanding at a faster pace than economists forecast, and house prices jumping, Citigroup Inc.’s gauge of U.K. economic surprises climbed to the highest level since April.
Protracted deliberations in the euro area over Greece’s debt enhanced the allure of sterling as an alternative to the common currency.
The pound’s gains may have been greater still, but for a report on Friday that showed the U.S. economy added more jobs in January than analysts forecast.
“Some of the pessimism toward the U.K. economy at the end of last year seemed to have eased as recent data suggested the recovery here is solid,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The pound should remain supported, especially against the euro.”
The U.K. currency rose 1.2 per cent last week to $1.5244 as of 5:02 p.m. in London on Friday, the biggest gain since February 2014. It appreciated 0.9 per cent to 74.33 pence per euro, having touched 74.05 pence on Jan. 26, the strongest level since 2008.
Markit Economics said on Wednesday in London that its purchasing managers’ index for services, the largest part of the U.K. economy, rose to 57.2 in January from 55.8 the previous month. The median estimate of analysts in a Bloomberg survey was for an increase to 56.3.
A separate manufacturing index rose to 53 from a revised 52.7, with a reading above 50 indicating expansion.
Data from mortgage lender Halifax on Thursday showed U.K. house prices rose 2 per cent in January from December.
While Bank of England Governor Mark Carney and his fellow policy makers kept the benchmark interest rate at 0.5 per cent last week, the economic data boosted bets on an increase in borrowing costs this year.
Ten-year gilt yields rose 32 basis points from Jan. 30 to 1.65 per cent, the biggest increase in yields since June 2013. The 2.75 per cent bond due in September 2024 dropped 3.01, or 30.10 pounds per 1,000-pound face value, to 109.735.
The yield has risen from 1.325 per cent on Jan. 30, the lowest since Bloomberg started collecting the data in 1989.
Economists predict the central bank rate will climb to 0.75 per cent by the end of December, according to the median forecast collected by Bloomberg.
The Bank of England will release its quarterly Inflation Report on Feb. 12. Government bonds rallied and the pound fell on Nov. 12, when the central bank cut its growth forecasts and said increases in consumer prices would slow in coming months.
Sterling rose 1 per cent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro fell 3.8 per cent while the dollar rose 3.4 percent.
News by Bloomberg, edited by ESM
