Azernews.Az

By Bloomberg

The pound climbed the most in two weeks against the euro as Britain’s economy accelerated, backing the case for the Bank of England to raise interest rates for the first time in eight years.

Sterling rose for a second day versus the dollar after a report showed U.K. gross domestic product expanded 0.7 percent in the three months through June, its 10th consecutive quarter of growth. Investors are speculating rates will rise in May, according to forward contracts based on the sterling overnight index average, or Sonia. Less than three weeks ago, they were betting on August 2016. U.K. government bonds declined.

“The pound is performing well, post the data,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Some market expectations were that the data could come in lower. That’s the key.”

The pound strengthened 0.7 percent to 70.76 pence per euro as of 12:31 p.m. London time, after touching 71.61 pence on Monday, the weakest level since July 13. It climbed 0.2 percent to $1.5596.

The U.K. currency has been whipsawed in recent weeks as traders weighed the outlook for a rate increase. It touched its strongest level in 7 1/2 years against the euro on July 17 after BOE Governor Mark Carney said the end of record-low rates was in sight, only to drop the following week as June retail sales unexpectedly declined.

The central bank, which today said it appointed Brevan Howard Asset Management economist Gertjan Vlieghe to its Monetary Policy Committee, may raise rates as early as March, according to Mizuho’s Jones.

Best Performance

Investor confidence that the U.K. will be among the first developed nations to increase borrowing costs has bolstered sterling. The pound is the best performer over the past six months in a basket of 10 peers tracked by Bloomberg Correlation- Weighted Indexes, having strengthened 7.4 percent.

Analysts have grown more bullish on the pound since the start of the month, with the median year-end forecast rising to $1.52 from $1.50, according to Bloomberg surveys. It’s seen strengthening to 69 pence per euro.

The growth data “just adds a lot more confidence” about a rise in interest rates around the end of the year,’’ said Simon Derrick, chief markets strategist at Bank of New York Mellon Corp. in London. With a “fairly straight-forward economic story working at its favor, I would expect sterling, along with the dollar, to continue to be favored,” he said.

The yield on 10-year gilts added one basis points, or 0.01 percentage point, to 1.95 percent. The 5 percent security due March 2025 slid 0.13, or 1.30 pounds per 1,000-pound face amount, to 126.625.