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By Bloomberg

The pound strengthened against the euro for a second day as demand for haven assets, such as Europe’s shared currency, fell after the central bank of China cut interest rates to shore up economic growth.

Sterling advanced from a level reached Monday that was its weakest in more than three months against the 19-nation single currency, when stock markets across the globe suffered selloffs as commodity prices slumped. The People’s Bank of China said on Tuesday it will cut its benchmark lending rate for the fifth time since November and lower the amount of cash banks must set aside in an attempt to stem the deepening slowdown in the world’s second biggest economy.

“The move in euro-sterling is more a function of the euro,” said Derek Halpenny, the London-based head of European markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. “We had over-extended on the upside for the euro,” during the market turmoil earlier this week. He said that was due to an “escalation of risk aversion, so euro-sterling was dragged higher. We have seen some reversal of that now.”

The pound strengthened 0.3 percent to 73.19 pence per euro as of 1:07 p.m. London time, after touching 74.23 pence on Aug. 24, its weakest level since early May. The U.K. currency was down 0.7 percent against the dollar to $1.5582. It touched $1.5819 on Tuesday, it’s highest since June 23.

U.K. government bonds were little changed, with the yield on the 2 percent gilt due in September 2025 at 1.91 percent. The price was 100.81.

Sterling Bulls

While the recent chaos in markets caused traders to delay their calls for an increase in interest rates by the U.S. Federal Reserve and the Bank of England, analysts at BNP Paribas SA forecast further strength in the pound, due to monetary- policy tightening in Britain.

“We have not changed our outlook for sterling,” said Sam Lynton-Brown, a London-based foreign-exchange strategist at BNP Paribas. “We are still firmly sterling bulls. We expect the Bank of England will start the monetary policy tightening cycle in February 2016,” which is significantly ahead of market expectations, he said.

Forward contracts based on the sterling overnight index average, or Sonia, show traders aren’t pricing in a 25 basis- point increase to the BOE’s main rate until beyond October 2016. Last week, markets suggested they were pricing in a move next August.