Pound still continues rise after election bounce
Published 13/05/2015 | 02:30
The pound sterling has rallied the most in almost five years versus the dollar since last week's general election and as industrial production unexpectedly increased.
Sterling has climbed almost 3pc against the US currency since Britain's May 7 vote surprised investors by producing an outright majority for the Conservative Party.
The pound weakened for the first time in four days versus the euro yesterday, slipping 0.1pc to 71.66 pence to the euro, after strengthening 4pc in the previous three days.
The UK currency has gained 3pc in the past week, making it the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes.
With fears of a deadlocked UK parliament gone, the pound surpassed its 200-day moving average versus the dollar yesterday, which can indicate a shift in its trend.
The last time it crossed was in August. UK government bonds declined for a second day as a global rout in fixed-income markets extended.
"The pound is trading on a firmer footing after the election risk premium was removed," said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ in London.
"The UK economy still appears to expanding solidly, providing support for the pound. We expect the pound to continue to firm in the near term."
The three-day gain of 2.9pc against the dollar is the biggest since July 2010.
The 200-daily moving average is at $1.5624. When the average was breached in August, the pound accelerated a decline that continued until April.
The weakness of the US currency could provide some attractive levels to buy the dollar, Mr Hardman said.
"The US dollar is starting to look overdone so we'd be cautious about chasing pound-dollar higher from here," he added. Sterling is more likely to significantly appreciate against the euro than the dollar, he said.
The Bank of England will publish its quarterly Inflation Report today, which will include economic growth and inflation projections that policy makers use to help inform their view on future borrowing costs.
Before then, data will show a decline in Britain's unemployment rate and an increase in average wages, according to the estimate of analysts surveyed by Bloomberg.