The pound approached a seven-week high versus the euro before the Federal Reserve releases meeting minutes that may provide a clue about when U.S. policy makers will remove stimulus that has helped underpin global growth.
The U.K. currency was about 0.2 percent from the strongest level in two months versus the dollar after a report showed the nation posted a budget deficit in July. U.K. government bonds declined, pushing benchmark 10-year yields toward the highest since August 2011.
“The pound could be fairly supported ahead of the Fed minutes,” said Josh O’Byrne, a foreign-exchange strategist at Citigroup Inc. in London. “We suspect they’ll follow on from the more dovish tone set in the statement, highlighting higher mortgage rates and downside risks from low inflation.”
The pound advanced 0.2 percent to 85.44 pence per euro at 9:29 a.m. London time after appreciating to 85.05 Aug. 15, the strongest level since July 3. The U.K. currency was little changed at $1.5661.
The Fed will publish today its July 30-31 meeting minutes that may offer clues on whether policy makers will start reducing their $85 billion of monthly bond purchases. The Federal Open Market Committee will probably decide to reduce the program at its Sept. 17-18 meeting, according to 65 percent of economists surveyed by Bloomberg News from Aug. 9-13.
U.K. net borrowing excluding temporary support for banks was 488 million pounds compared with a surplus of 823 million pounds a year earlier, the Office for National Statistics said. Including coupon cash received from the Bank of England on its holdings of gilts, the deficit was 62 million pounds.
The pound has gained 5.3 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 4.1 percent and the dollar strengthened 2.3 percent.
The 10-year gilt yield rose one basis point, or 0.01 percentage point, to 2.69 percent after climbing to 2.75 percent on Aug. 19, the highest since Aug. 8, 2011. The 1.75 percent bond due in September 2022 fell 0.09, or 90 pence per 1,000-pound face amount, to 92.52.
Gilts lost investors 4.3 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bonds dropped 2.1 percent and Treasuries declined 3.5 percent.
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