Pound gains versus euro

Published Jun 23, 2015

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Edinburgh - With Greece’s bailout drama heading toward a finale, investor focus is shifting toward relative economic performance - which points to a stronger pound.

Sterling resumed an advance versus the euro, reaching the strongest level this month. It halted the longest run of gains in almost nine months versus the single currency on Monday as Greek Prime Minister Alexis Tsipras got another 48 hours to secure a deal with creditors. UK two-year government bond yields touched the highest in more than three months as Bank of England Deputy Governor Jon Cunliffe said that the era of “very cheap labour” in Britain is coming to an end.

The pound’s strength has been driven by data showing the UK economic recovery is gathering momentum and wage-growth accelerating at a faster pace, cementing speculation that the BOE will be the next major central bank to raise interest rates after the Federal Reserve. In contrast, the European Central Bank is committed to implementing its bond-buying program through at least September 2016.

“The emergency level of rates that we have here in the UK, I would suggest is not appropriate for the state of the economy though inflation numbers are still very depressed,” Scott Thiel, London-based deputy chief investment officer for fundamental fixed income at BlackRock, said in an interview on Bloomberg Television’s The Pulse programme. “The UK economic situation is also very robust” like the US, he said.

The pound appreciated 0.7 percent to 71.14 pence per euro as of 10.10am London time, the strongest level since May 28. The UK currency fell 0.1 percent to $1.5809.

Sterling has strengthened 5.6 percent against a basket of 10 developed-nation currencies over the past three months, the best performance in the group tracked by Bloomberg Correlation-Weighted Indexes, boosted by its haven appeal amid the Greek talks, and signs of economic strength gathering momentum.

Two-year gilt yields were little changed at 0.60 percent after rising to 0.65 percent, the highest since March 6. The price of the 1.75 percent bond maturing in January 2017 was 101.80 percent of face value. Benchmark 10-year gilts yielded 2.09 percent.

Bloomberg

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