The pound climbed to the strongest versus the euro in more than nine months after the European Central Bank unexpectedly lowered its benchmark interest rate, bolstering demand for alternatives to Europe’s shared currency.
Sterling appreciated for a third day versus the Swiss franc after the Bank of England kept its key policy rate at a record low and maintained its bond-buying stimulus target. Britain’s currency weakened versus the dollar after data showed the economy in the U.S. expanded in the third quarter. The yield difference between German and U.K. two-year notes widened to the most since May as ECB President Mario Draghi said borrowing costs will remain low for a “prolonged period.”
“The BOE policy stance looks increasingly out of kilter with the euro area,” said Paul Robson, a London-based foreign-exchange strategist at Royal Bank of Scotland Group Plc. “You’ve got one central bank that’s easing and the other that’s neutral, so that keeps the pound strong versus the euro. Sterling should do well against most European currencies.”