Feb. 3 (Bloomberg) -- The pound strengthened for a third week against the dollar, the longest run of gains against the greenback since October, as gauges of manufacturing and services output beat analyst estimates.
Sterling also appreciated versus the euro as data showed consumer confidence rose to the highest in seven months. Gilts declined as the Bank of England completed its latest round of bond purchases. A gauge of services activity, known as the purchasing managers’ index, climbed to a 10-month high in January. The U.K. FTSE 100 Index of shares climbed 2.7 percent, its biggest weekly gain since Dec. 2.
“This week we have manufacturing and particularly services PMI moving up fairly significantly,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “Alongside that, sterling is a risk-correlated currency and with equities performing relatively well, that’s providing some impetus. The combination of those two factors has obviously seen sterling making some pretty reasonable gains.”
The pound rose 0.3 percent in the week to $1.5778 at 4:59 p.m. London time yesterday, extending its 1.4 percent gain in January. Sterling appreciated 1.2 percent against the euro in the five-day period.
The pound has weakened 1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. It advanced 0.2 percent against the basket in the past week as the PMI climbed and manufacturing unexpectedly expanded.
The 10-year gilt yield rose 11 basis points in the week to 2.18 percent as the Treasury sold 7.25 billion pounds of bonds and bills. The U.K. is scheduled to auction 4 billion of 2017 bonds next week.
Bank of England policy maker Adam Posen said on Feb. 2 he’s “leaning” toward more stimulus when the central bank’s Monetary Policy Committee meets on Feb. 9. There is a case to increase the bond-purchase target by a further 75 billion pounds, he said in a Bloomberg Television interview.
“I suspect that we will get more,” said Stretch. “Some people may well consider their thoughts after the PMIs but it’s still the case that the central bank will be mindful of the economy being well below its optimum level.”
Gilts have handed investors a loss of 0.7 percent so far this year, while German government bonds have slipped 0.1 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
--Editors: Mark McCord, Nicholas Reynolds
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