The pound rose to a seven-year high versus the euro as U.K. wage growth accelerated and the unemployment rate fell. The data support the Bank of England’s decision to not ease monetary policy amid low inflation. Sterling climbed against all of its 16 major peers. Ten-year government bonds fell, pushing up the yield to its highest level of 2015, as the central bank said it sees inflation rising “fairly sharply” next year, when effects of weaker oil prices may fade. Pay grew an annual 2.1 percent in the fourth quarter, outstripping inflation by the biggest margin since 2008. The jobless rate fell to the lowest in more than six years, the Office for National Statistics said.
“The wage growth breaking above 2 percent is probably the key catalyst” for the pound’s gains, said Stuart Bennett, head of Group of 10 currency strategy at Banco Santander (MADRID:SAN) in London. “Over the past three months of data we believe sterling has been undervalued in relation to where unemployment is going. The fact these numbers are a surprise may have been a wake-up call.”
The pound appreciated 0.8 percent to 73.73 pence per euro at noon London time, and touched 73.634 pence, the strongest since January 2008. Sterling rallied 0.4 percent to $1.5422, for the first increase in three days.
via Bloomberg