The pound strengthened for a fourth day against the dollar after a government report showed construction output increased in December, adding to evidence Britain’s economic recovery is gathering pace.
Sterling extended its biggest weekly advance versus the greenback since June amid speculation the sale of a stake in Verizon Wireless by Vodafone Group Plc will lead to inflows into the U.K. currency. The pound has risen against all its 16 major peers this week as investors bet Bank of England Governor Mark Carney will have to increase interest rates as the economy improves. U.K. government bonds declined.
“We are constructive on the U.K. economy,” said Valentin Marinov, head of European Group-of-10 currency strategy at Citigroup Inc. in London. “It’s an environment that will support demand for U.K. assets and therefore sterling.”
The pound gained 0.4 percent to $1.6727 at 4:05 p.m. London time, extending this week’s advance to 1.9 percent, the most since the period ended June 7. It reached $1.6743, the highest level since May 2, 2011. The U.K. currency appreciated 0.4 percent to 81.82 pence per euro.
Sterling has jumped 12 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid speculation an improving economy will bring forward interest-rate increases. The euro rose 5.7 percent and the dollar gained 2.9 percent.
Verizon Communications agreed to buy Vodafone’s 45-percent stake in Verizon Wireless for $130 billion in September. The deal completion is expected on Feb. 21, with stock and cash payments due on Feb. 24 and March 4 respectively. Vodafone said on Jan. 28 its investors would receive about 1.04 pounds per share, based on Verizon’s share price of about $47.64.
Carney revised the central bank’s forward-guidance policy in the quarterly Inflation Report released this week. He replaced an unemployment threshold with a range of indicators, including spare capacity, as the means of assessing when the central bank might increase interest rates. The Bank of England raised its growth forecasts and now sees expansion of 3.4 percent this year, according to the Feb. 12 report.
Bank of England Chief Economist Spencer Dale said yesterday investors’ bets that borrowing costs will increase within two years were reasonable.
Construction output climbed 0.2 percent in the fourth quarter from the previous three months, the Office for National Statistics said. That compares with a decline of 0.3 percent published in gross domestic product figures last month. Separate data today from real-estate researcher Acadata and LSL Property Services Plc showed house prices rose to a record in January.
The 10-year gilt yield rose one basis point, or 0.01 percentage point, to 2.28 percent, having increased nine basis points this week. The 2.25 percent bond due in September 2013 fell 0.085, or 85 pence per 1,000-pound face amount, to 95.405.
Gilts handed investors a return of 1.6 percent this year through yesterday, according to Bloomberg World Bond Indexes. Treasuries gained 1.6 percent and German bunds gained 2 percent.
The pound may rise toward $1.70 if unemployment data to be published Feb. 19 shows further strength in the job market, said Harry Adams, head of trading at Argentex LLP, a currency advisory company in London. The Bank of England will release minutes of this month’s policy meeting the same day.
“If there are no surprises from the BOE minutes, and the unemployment figure is at least unchanged from the last reading, we will push through multiyear highs against the dollar, with $1.70 firmly in sight,” Adams said.
The jobless rate was unchanged at 7.1 percent in the three months through December from the previous three month, according to a Bloomberg News survey before the Office for National Statistics releases the figures.