The pound headed for its biggest weekly gain against the dollar since October, and weakened versus the euro. The cost of goods at U.K. factory gates increased 0.5 percent from November, a report showed yesterday, above the 0.4 percent forecast by economists. A report due Jan. 18 is forecast to show consumer- price inflation remained above the government’s 3 percent target for a tenth straight month in December. Consumer prices are forecast to rise 3.4 percent from a year earlier.
“If we continue to get price data leaning in this direction it’s going to add more pressure,” said Peter Chatwell, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The market is going to be looking for comments from the Bank of England, anything which gives them a clue that there could be a greater probability of rate hikes.”
Ten-year bond yields rose 10 basis points in the week to 3.61 percent as of 5:21 p.m. in London, after reaching 3.65 percent on Jan. 12, within half a basis point of the highest since May 19. The two-year note yield climbed 13 basis points to 1.33 percent.
“Short-dated gilts are definitely reacting to the threat of higher policy rate,” said Sam Hill, a fixed-income strategist at RBC Capital Markets in London. “The reality probably is that the Bank of England foresees a very nasty mix of risks to lower growth and risks to higher inflation.”
Spending Cuts
Prime Minister David Cameron’s government is pushing through the biggest public-spending cuts since World War II.
Gilts lost 1.83 percent so far this year, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg. Treasuries returned 0.1 percent and German debt handed investors a loss of 0.6 percent, the indexes show.
Sterling gained 2.2 percent to $1.5882, set for the biggest one-week advance since the five days ended Oct. 29. Against the euro, the British currency weakened 1.3 percent to 84.10 pence. For the latest updates PRESS CTR + D or visit Stock Market news Today
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