The pound rose to the strongest level in 2 1/2 years against the dollar as Bank of England Chief Economist Spencer Dale said investors’ bets that U.K. interest rates will increase within two years were reasonable.
Sterling advanced for a third day versus the U.S. currency as American retail sales unexpectedly slumped by the most since June 2012. The pound fell versus the euro after jumping the most in eight weeks yesterday when Governor Mark Carney revised the central bank’s interest-rate guidance, fueling bets he will struggle to hold down borrowing costs. U.K. government bonds rose after yields climbed to a two-week high.
“The U.K. economic outlook has improved,” said Ian Stannard, head of European currency strategist at Morgan Stanley in London. “While the Bank of England’s fine-tuning of its forward guidance may have added uncertainty to the interest-rate outlook, sterling will be supported at least in the near term by optimism about the recovery.”