The pound strengthened to a seven-month high versus the dollar after a government report showed U.K. unemployment unexpectedly fell, adding to signs the economy is gaining momentum.
Sterling reached the strongest level since January against the euro as the jobless rate moved a step closer to the 7 percent threshold at which Bank of England Governor Mark Carney has said officials will assess their policy of keeping interest rates at a record low. Government bonds rose, pushing yields down from a two-year high.
“The pound is likely to maintain its recent momentum in the near term,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “It will probably take another two years before the unemployment rate drops to the 7 percent target. Still, a decline in jobless claims will no doubt help in terms of sentiment.”
The pound advanced 0.2 percent to $1.5769 at 11:29 a.m. London time after rising to $1.5827, the highest level since Feb. 8. The U.K. currency climbed 0.2 percent to 84.14 pence per euro after appreciating to 83.83 pence, the strongest level since Jan. 23.
The unemployment rate as measured by International Labour Organization methods declined to 7.7 percent in the three months through July from 7.8 percent in the second quarter, the Office for National Statistics said in London. The median forecast of 28 economists was for 7.8 percent. In August, jobless claims fell 32,600, more than economists had forecast.
The improvement in jobs data may not bring an interest-rate increase forward, according to Capital Economics Ltd.
“Although employment rose strongly, more timely evidence from the recent activity surveys suggests that firms are responding to higher demand more by boosting productivity than taking on new workers,” Martin Beck, a U.K. economist in London, said. “We doubt today’s news significantly increases the chances of interest rates rising sooner rather than later.”
Sterling has risen 7.5 percent in the past six months, the best performer among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1 percent and the euro advanced 2.9 percent.
The benchmark 10-year gilt yield fell one basis point, or 0.01 percentage point, to 3.01 percent after rising to 3.05 percent, the most since July 2011. The 2.25 percent bond due September 2023 rose 0.1, or 1 pound per 1,000-pound face amount, to 93.51. The two-year yield also fell one basis point, to 0.52 percent.
Gilts lost 5.1 percent this year through yesterday, according to Bloomberg World Bond Indexes. German bunds dropped 3 percent and U.S. Treasuries fell 4.1 percent.
Chart: WorldWideMarkets Flash Trader