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London - The pound strengthened after UK retail sales rose more than forecast in August, boosting investor expectations that the Bank of England will raise borrowing costs in the coming months.
Sterling advanced against the dollar for a second day and UK bonds fell as retail sales excluding automobile fuel rose 1% from July, 10 times the median forecast in a Bloomberg survey.
Overnight, UK Prime Minister Theresa May and Foreign Secretary Boris Johnson appeared to have papered over their differences on Brexit, with the latter planning to attend her keynote speech in Florence after challenging her plan for leaving the European Union.
The pound has rallied more than 5% against the dollar this month after the central bank’s monetary policy committee said that it could move to raise rates “in the coming months.” Money markets are now pricing an almost 78% chance of a rate increase in November, with a hike fully priced in by next February.
“The data increases the likelihood of a hike in November as weak consumer spending has been of concern for the majority in the monetary policy committee,” said Richard Falkenhall, a Stockholm-based currency strategist at Skandinaviska Enskilda Banken.
“This sort of positive surprise will continue to support the pound. I think people have to revise the view on UK growth in a positive direction.”
The pound traded 0.7%higher at $1.3587 as of 10:39. The yield on two-year gilts rose one basis point to 0.425%.
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