London - The pace of the pound’s rally to a 17-month high against the euro has caught analysts by surprise, with the exchange rate exceeding their forecasts for the end of next month by the most on record.
The pound is more than a penny stronger than the median estimate of analysts for June 30, amid bets the Bank of England is moving closer to increasing interest rates while its European counterpart looks to add more stimulus that tends to weaken a currency.
Sterling rose this week as retail sales surged and minutes of this month’s central bank meeting showed the decision to leave rates at a record low was becoming “more balanced” for some members of the Monetary Policy Committee.
“Euro-sterling is trading at some pretty important levels,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London.
“It seems inevitable we are going to be heading down to the 80.20/30 area in the next couple of weeks because of the likelihood of ECB easing as well as UK data resilience. We shouldn’t be too surprised to see downside risks continuing to play out in euro- sterling,” he said, referring to the pound strengthening against the euro.
The UK currency was little changed at 80.94 pence per euro at 4:32 p.m. London time.
It earlier appreciated to 80.82 pence, the strongest level since December 2012.
The median estimate of analysts surveyed by Bloomberg is for the currency pair to end June at 82 pence.
The current spot level exceeds that forecast by the most since Bloomberg began tracking the data in June 2013, according to closing-price data.
The year-end median estimate is 80 pence per euro.
Sterling fell 0.2 percent to $1.6842 today.
The median analyst estimate for the end of June is $1.67.
The UK currency has strengthened at least 1.2 percent against all 31 of its major peers in the past 12 months as speculation has shifted to the timing of the first increase in central bank rates and away from bets the BOE may have been prepared to add stimulus.
Sterling has gained 10 percent in the period, according to Bloomberg Correlation-Weighted Indexes, beating a 3.8 percent gain in the euro and a 2.1 percent drop in the dollar.
A Deutsche Bank AG trade-weighted index of the pound climbed to 83 pence yesterday, its strongest level since November 2008, after the Office for National Statistics said on May 21 that retail sales including auto fuel surged 1.3 percent in April, after rising a revised 0.5 percent the previous month.
The gain exceeded analyst estimates.
The UK 10-year government bond yield fell two basis points, or 0.02 percentage point, to 2.64 percent today, having climbed seven basis points this week, the biggest increase since the period ended March 21.
The 2.25 percent gilt due September 2023 rose 0.135, or 1.35 pounds per 1,000-pound face amount, to 96.835.
Gilts lost 0.7 percent in the 12 months through yesterday, underperforming Treasuries and German securities, Bloomberg World Bond Indexes show. - Bloomberg News