London - The pound strengthened, rising for a fourth day against the euro, as a gauge of UK manufacturing climbed in November at a faster pace than economists forecast.
Sterling climbed to the strongest since August 2011 versus the dollar after separate data showed British house prices increased in all regions last month for the first time in more than six years.
UK government bonds fell for a second day as demand for fixed-income assets waned.
The Bank of England said last month that officials may consider raising interest rates sooner than previously forecast as the recovery gains pace.
“The markets will continue to romance the idea that the Bank of England will ultimately have to raise interest rates earlier than is currently expected,” said Paul Robson, a currency strategist at Royal Bank of Scotland Group Plc in London.
“The UK recovery does seem to be leading many other developed nations and that translates into a favorable move in interest-rate spreads and that is something that tends to support the currency.”
The pound advanced 0.5 percent to 82.61 pence per euro at 1:13 p.m. London time after appreciating to 82.53 pence, the strongest level since January 11.
The UK currency gained 0.1 percent to $1.6387 after rising to $1.6443, the highest since August 2011.
Best Performer
Sterling has gained 7.5 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
The euro rose 3.4 percent, while the dollar weakened 1.1 percent.
An index of UK manufacturing based on a survey of purchasing managers climbed to 58.4 from a revised 56.5 in October, Markit Economists said in London.
This exceeded the 56.1 median estimate of economists in a Bloomberg News survey.
Home values across England and Wales increased 0.5 percent from October, property researcher Hometrack said.
“The report reinforces the recent strong buy momentum for the pound,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, referring to the manufacturing data.
“The report is consistent with the robust pace of economic recovery continuing in the final quarter of this year. That’s a supportive factor for the pound with the UK economy outperforming the other major economies.”
The 10-year gilt yield climbed five basis points, or 0.05 percentage point, to 2.81 percent after rising to 2.87 percent on November 21, the highest level since September 24.
The 2.25 percent bond maturing in September 2023 fell 0.375, or 3.75 pounds per 1,000-pound face amount, to 95.21.
UK Outperforms
Britain’s economy grew faster than those of other Group of Seven nations in the third quarter, expanding 0.8 percent, up from 0.7 percent in the previous three months.
As UK and European economies diverge, investors are demanding the largest premium to hold UK bonds over their French equivalents in more than three years.
Ten-year gilts yield 65 basis points more than similar-maturity French bonds, the most since May 2010 based on closing prices.
The Bank of England said in its quarterly Inflation Report on November 13 the jobless rate is more likely than not to fall to the 7 percent threshold that will lead it to consider raising interest rates in the third quarter of 2015.
It previously predicted that would only happen in 2016.
UK government securities handed investors a loss of 3.2 percent this year through November 29, according to Bloomberg World Bond Indexes.
German bonds fell 1 percent and US Treasuries declined 2.3 percent. - Bloomberg News