The pound strengthened to a three-week high against the dollar as speculation the Bank of England will raise its benchmark interest rate earlier than it forecast spurred demand for the U.K. currency.
Sterling jumped the most this month versus the euro after people with knowledge of the discussion said the European Central Bank may cut its deposit rate to minus 0.1 percent. Bank of England policy makers said in the minutes of their November meeting released today that record-low borrowing costs may still be needed even after the jobless rate falls to 7 percent. U.K. government bonds declined for a second day.
“The broad story supporting sterling is still intact,” said Jeremy Hale, head of macro strategy at Citigroup Inc. in London. “While the minutes showed there was some discussion about not raising rates, I don’t think anyone particularly thought they would jump to hike anyway. It’s still clear that the economy has a lot of momentum and it’s clear that the direction for rates eventually is up.”