GBP/USD up to 1.57 as Policy Gap Boosts Demand

The pound rose, approaching a six-year high against the yen, on speculation it will be supported by relatively higher interest rates even as the Bank of England delays increasing U.K. borrowing costs.

Sterling climbed against the dollar before data this week that analysts said will show U.K. gross domestic product expanded in the third quarter. While BOE interest rates are at a record-low 0.5 percent, they are higher than those of the euro area and Japan, where policy makers are embarking on more stimulus measures that tend to devalue local currencies. U.K. 10-year government bonds ended a two-day advance, with yields rising from a five-week low.

The policy “divergence trade is still very much a strong force” even as U.K. data “has been slightly more mediocre than previously,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Sterling will outperform against all the others” including the yen and the euro which are being pulled down by prospects of new stimulus measures, he said.

Bloomberg

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