The pound reached the strongest level in 20 months versus the euro as speculation the Bank of England is moving closer to raising interest rates boosted the allure of U.K. assets.
Sterling traded above $1.70 for the first time since 2009 after Bank of England Deputy Governor Charlie Bean said higher rates would be a sign that the economy was returning to normal. The currency posted its biggest weekly gain in four months after BOE Governor Mark Carney said on June 12 that borrowing costs may rise sooner than economists expect. Two-year government bonds fell, reducing the yield difference with 10-year gilts to the least in almost a year.
“We continue to be constructive on sterling, especially against the euro, where the monetary policy cycles are continuing to diverge,” said Josh O’Byrne, a foreign-exchange strategist at Citigroup Inc. in London. “Carney was more hawkish than expected and you saw an upward revision in rates markets. This morning we’ve seen rates tick up further still and the pound generally supported.”
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