The pound strengthened the most in four weeks against the dollar as a measure of U.K. services expanded more in April than economists forecast and an index of employment improved.
Sterling rose versus 12 of its 16 major counterparts as the Organisation for Economic Cooperation and Development raised its growth forecasts for Britain for this year and next. U.K. government bonds fell, with two-year yields climbing to the highest level since July 2011, as demand for the safety of fixed income assets waned. The Bank of England starts a two-day policy meeting tomorrow after Governor Mark Carney said last week borrowing costs may remain low due to slack in the labor market.
“This is a very positive report on the U.K. services economy, especially if we consider the employment sub-index,” said Eimear Daly, head of market analysis at Monex Europe Ltd. in London. “The report suggests this spare capacity slack is being squeezed tighter and the Bank of England will soon run out of room to keep policy loose. Even at these lofty heights, sterling still has further to go.”