By Neal Armstrong - Sept. 2, 2013
The pound rose to the strongest level versus the euro in two months after an index of U.K. manufacturing expanded to the most since February 2011, adding to signs the economy is recovering.
Gilts fell, pushing 10-year yields to the highest in more than two years, as the gauge, based on a survey of purchasing managers, damped demand for the safety of government debt. Sterling rose for the first time in five days against the dollar before the Bank of England meets this week. The central bank will keep its asset-purchase program and benchmark interest rate unchanged, according to economists surveyed by Bloomberg, as policy makers assess the impact of forward guidance.
“The U.K. PMI is another piece of good news for the pound,” said Peter Frank, global head of currency strategy at Banco Bilbao Vizcaya Argentaria SA (BBVA) in London. “It’s another piece of evidence to suggest the recovery in the U.K. economy is broad-based. Almost every data set has been quite good over the past two months.”
The pound appreciated 0.5 percent to 84.86 pence per euro at 10:30 a.m. London time after reaching 84.72 pence, the strongest level since June 26. Sterling rose 0.5 percent to $1.5577.
The measure of manufacturing output rose to 57.2 in August from 54.8 a month earlier, Markit Economics and the Chartered Institute of Purchasing and Supply said today. The median estimate in a Bloomberg survey of economists was for a reading of 55. A reading above 50 indicates expansion.
A separate report showed average house values in England and Wales rose 0.4 percent after a 0.3 percent gain in July, London-based property researcher Hometrack said. Prices were up 1.8 percent from a year earlier, the most since July 2010.
The Engineering Employers’ Federation raised its forecasts for U.K. economic growth and manufacturing output.
The Bank of England’s nine-member Monetary Policy Committee will keep its bond-buying stimulus program at 375 billion pounds on Sept. 5, according to all 38 economists in a Bloomberg survey. Officials will also hold the main interest rate at a record-low 0.5 percent, a separate survey showed.
The pound strengthened 6.6 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 4.2 percent and the dollar climbed 2.5 percent.
Benchmark 10-year gilt yields climbed eight basis points, or 0.08 percentage point, to 2.86 percent after reaching 2.87 percent, the highest since Aug. 1, 2011. The 2.25 percent security maturing in September 2023 fell 0.7, or 7 pounds per 1,000-pound face amount, to 94.76.
Gilts lost 3.7 percent this year through Aug. 30, according to Bloomberg World Bond Indexes. German bonds dropped 2.2 percent and Treasuries declined 3.3 percent.
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