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Pound climbs towards multi-year high against dollar

Sterling has risen 12 per cent against the dollar so far this year on bullish sentiment on UK economy

The pound scored its biggest gain for more than seven months this week as official figures showed the construction industry ended the year on a more positive footing than previously thought.

Sterling has risen by 1.9 per cent this week, hitting $1.6708 after the construction data was released.

The surge in the pound has been driven by speculation that interest rates in the UK could rise sooner than expected after Bank of England Governor Mark Carney was forced to redraw his forward guidance policy this week, replacing the simple target of unemployment falling below 7 per cent before rates could rise with  a matrix of economic indicators including spare capacity.

Harry Adams, managing director of currency specialist Argentex, said: “This time last year the majority of economists dismissed any chance of an interest rate rise in 2014; 12 months on and the odds of a hike have vastly shortened. This shift in sentiment, coupled with the ever-improving economic data, has encouraged global investors to buy the pound with increased vigour.”

The pound has risen 12 per cent against the dollar so far this year, making it the strongest performer  among developed market currencies. While the US is slowing its stimulus programme, it is still pumping $65 billion a month into the economy.

Construction output rose 2 per cent in December, prompting an adjustment of the figures used in the final-quarter GDP estimates from 0.3 per cent down to 0.2 per cent up.