CURRENCIES

THE POUND is expected to extend its gains against the dollar and euro in the week ahead as figures pointing to economic resilience foster the outlook for more interest-rate increases by the Bank of England. Bank policy-makers raised the benchmark rate to 5.25 per cent on 8 September, making sterling deposits more attractive. The Monetary Policy Committee may lift rates again soon, strategists said.

"There is a strong argument in favour of holding sterling, with the economy

doing well and interest rates going up," said Ken Wattret, a senior economist at Paribas Capital Markets. "You get paid for holding sterling and you'll probably get paid more [as rates rise]," he said.

The pound rose to its highest level ever against the euro on Friday, leaving it up 9.6 per cent since the single currency's introduction at the beginning of the year. The euro was at 0.6406 pound, after dipping as low as 0.6377.

The pound gained 0.26 per cent against the dollar last week, and it was at $1.6235 on Friday compared with $1.6245. Britain's currency is up 4.4 per cent since slumping to a three-year low on 12 July.

Sterling could rise as high as $1.70 by the end of the year, predicted Steve Barrow, a currency strategist at Bear Stearns International.

Traders bought pounds last week after reports showed retail sales rose more than expected in August, while the unemployment rate dropped to its lowest level in 19 years. Those figures suggested the economy may expand fast enough to prompt the Bank of England to raise interest rates at least one more time before the year ends.

"The factors that pushed rates upward earlier in the month haven't gone away," said Mr Wattret at Paribas. "We'll probably see another rate rise in November. The tightness of the labour market was reflected in another bigger-then-expected decline in the jobless rate. At the same time retail sales data is still pretty strong."

Of 15 economists surveyed, 11 expect the central bank to lift the repurchase rate to 5.50 per cent in November. In a signal that futures market investors agree with those economists, the yield on interest rate futures contracts expiring at the end of the year is 65 basis points higher than the current three-month lending rate.

The Bank's surprise rate increase earlier in the month "may give a signal to the market that the Bank of England will be pro-active in rate moves in the future", said Uwe Fuehrer, head of currency sales at Credit Agricole Indosuez. "That may give the pound some underlying support."

Three-month pound-denominated deposits offer investors only eight basis points fewer than those in the dollar, while they offer investors 273 basis points more than euro deposits.

Reports in the week ahead on trade and industrial trends, as well as the minutes from the central bank's September MPC meeting, might give the pound added lift.

The trade deficit with the rest of the world is expected to have narrowed in July, while the current account probably narrowed in the second quarter.

The August industrial trends survey, released last month, showed UK manufacturers were more sanguine about their prospects than they had been in two years.

September's report will be released on Thursday.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Digital Marketing Exec / Online Marketing Executive

£35 - 40k: Guru Careers: Our client has a new role for a Digital Marketing Exe...

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'