The pound strengthened the most in more than a week against the euro after U.K. reports showed construction output slowed less in April than economists forecast and mortgage approvals unexpectedly rose in March.
Sterling climbed to a 22-month high versus the shared currency after data showed euro-area manufacturing contracted and unemployment increased, adding to concern Europe’s debt crisis is worsening. The pound slipped from near an eight-month high against the dollar. Gilts rose for a third day.
“The pound is being driven by external factors as well as slightly better data” from the U.K., said Steven Saywell, head of foreign-exchange strategy for Europe at BNP Paribas SA in London. “We are starting to see sterling outperformance as a theme in the market.”
The pound appreciated 0.5 percent to 81.22 pence per euro at 4:40 p.m. London time after rising 0.6 percent, the biggest gain since April 23. It reached 81.13 pence, the strongest since June 2010. Sterling fell 0.1 percent to $1.6199 after climbing to $1.6302 on April 30.
A gauge of U.K. building activity based on a survey of purchasing managers dropped to 55.8 from 56.7 in March, Markit Economics and the Chartered Institute of Purchasing and Supply said. Economists surveyed by Bloomberg predicted a decline to 54. A reading above 50 indicates expansion. Lenders granted 49,860 loans to buy homes, up from 49,029 in February, the Bank of England said.
The euro-area factory gauge slipped to a 34-month low of 45.9 from 47.7 in March, Markit also said. A separate European report showed unemployment was at a 15-year high.
BNP predicts sterling will appreciate to 80 pence per euro in the second half of the year, Saywell said. The U.K currency may strengthen to $1.75 in the same period, he said.
“That’s a very bullish view, based largely on the dollar remaining weak, driven by a very easy U.S. policy, and the market pricing in some policy normalization by the Bank of England,” he said.
The pound has risen 3 percent in the past three months, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 0.3 percent, and the euro climbed 0.4 percent.
The 10-year gilt yield fell five basis points to 2.05 percent after dropping to 2.04 percent, the lowest since April 16. The 4 percent bond due March 2022 rose 0.46, or 4.60 pounds per 1,000-pound face amount, to 117.295.
Bank of England officials will consider whether to extend their asset-purchase program when they meet on May 9-10. The Monetary Policy Committee backed finishing the current 325 billion-pound round plan when it last met on April 4-5.
The Debt Management Office plans to auction 1.2 billion pounds of inflation-linked securities due March 2034 tomorrow.
Gilts have handed investors a loss of 1.2 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Treasuries were little changed, and German bunds gained 1.4 percent.
Gilt futures expiring in June may test their record high should they remain above a level of so-called support, according to UBS AG, citing trading patterns.
“Gilts are bullish while they trade above the 115.08 low,” Richard Adcock, head of fixed-income technical strategy at UBS in London, wrote today in a note to clients. That represents the April 25 intraday low, Adcock wrote.
A break beyond 116.24 will pave the way to the April 10 high of 116.74, he said. Support refers to an area where buy orders may be clustered.
The June contract rose 0.4 percent to 116.37.
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