The pound approached an eight-month high against the dollar after a report showed inflation remained above the Bank of England’s target last month amid signs confidence is growing in the U.K. economy.
Sterling pared earlier gains after the data showed consumer prices rose at a slower pace in August, in line with the median estimate in a Bloomberg News survey of analysts. The pound was about 0.5 percent from its strongest level versus the euro since January after the U.K. government sold a 3.2 billion-pound ($5.09 billion) stake in Lloyds Banking Group Plc, a first step toward full private ownership of Britain’s largest mortgage lender. U.K. bonds fell for the first time in five days.
“The data was in line with economist expectations, but the market has become accustomed to U.K. data outperforming,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “However, the pound should still trade higher. Confidence in U.K. assets and companies continues to build and the economic and political backdrop is positive.”
The pound gained less than 0.1 percent to $1.5898 at 10:24 a.m. London time after earlier rising as much as 0.3 percent. It touched $1.5963 yesterday, the highest since Jan. 18. The U.K. currency weakened 0.2 percent to 84.06 pence per euro after appreciating to 83.57 pence on Sept. 13, also the strongest level since Jan. 18.
Consumer prices rose 2.7 percent in August from a year ago after increasing 2.8 percent in July, in line with the median forecast of 34 economists in a Bloomberg survey. Producer prices gained 1.6 percent from last year, after climbing 2.1 percent the previous month, a report showed.
The Bank of England, which targets a consumer-price inflation rate of 2 percent, publishes minutes of its most recent policy meeting tomorrow.
The 10-year break-even rate, a gauge of market inflation expectation derived from a yield gap between gilts and index-linked securities, widened four basis points to 3.07 percentage points after touching 3.03 percentage points yesterday, the narrowest since Aug. 27.
UK Financial Investments Ltd., which oversees the government stake in Lloyds, sold 4.28 billion shares, or about 6 percent of the company’s issued stock, the London-based body said. The shares were priced at 75 pence, a 3.1 percent discount to yesterday’s closing price and above the 73.6 pence the U.K. government originally paid after providing a 20 billion-pound bailout in 2008.
The pound has risen 6.7 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid signs the U.K. economy is improving. The dollar gained 0.8 percent and the euro advanced 3.3 percent.
“There is a lot of optimism surrounding the U.K. recovery right now and that’s the main driver for sterling,” said Jane Foley, a senior currency strategist at Rabobank International in London. “We haven’t been given much information on whether the Lloyd’s sale has gone overseas or not, but in a way that’s another bit of news that’s supporting a trend that’s already there.”
The 10-year gilt yield rose two basis points, or 0.02 percentage point, to 2.90 percent. The 2.25 percent security due in September 2023 slid 0.135, or 1.35 pounds per 1,000-pound face amount, to 94.425.
Gilts lost 4.4 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities dropped 2.3 percent and Treasuries declined 3.6 percent.
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