The pound rose to a 21-month high versus the euro after a report showing U.K. construction growth accelerated in June added to signs of strength in the economy.
Sterling appreciated to the strongest level against the dollar in more than five years as a separate report showed an index of housing activity increased this month. The data support the case for the Bank of England to consider raising interest rates this year after Governor Mark Carney has said the time to normalize them is “edging closer.” The European Central Bank lowered interest rates last month to stave off the threat of deflation. U.K. government bonds declined a fourth day.
“We continue to favor euro-sterling lower,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “Data divergence between the U.K. and the euro area has been very supportive of this view. There’s already been some pricing for a fourth-quarter rate hike and if the data remains on track, we’re likely to see sterling continue to rise.”