BLBG: British Pound Climbs Against Dollar, Euro as Equities Rebound
By Gavin Finch
Dec. 2 (Bloomberg) -- The pound rose against the dollar as stock advances in Europe rekindled risk appetite, spurring demand for the U.K. currency.
The pound climbed against 14 of the 16 most-traded currencies as the Dow Jones Euro Stoxx 50 Index, a benchmark for the region, gained 1.2 percent. Former Bank of England policy maker Willem Buiter said the central bank will weigh the risk of “a rout” in the pound as it cuts its benchmark rate this week.
“The pound is advancing on the back of the rebound in equities,” said Hans-Guenter Redeker, the London-based global head of currency strategy at BNP Paribas SA, France’s biggest bank. “There’s a close correlation between the pound and equities. People were short sterling on expectations of lower stocks. That’s turned around now.”
The British currency rose 1.1 percent to $1.5049 at 1:52 p.m. in London, from $1.4884 yesterday. Against the euro, it strengthened 0.2 percent to 84.53 pence, from 84.67 pence.
Tumbling house prices and a drop in consumer demand drove Britain’s economy to the brink of a recession this year, sending the pound 24 percent lower against the dollar and 13 percent down versus the euro.
The pound’s drop is “one of the things that could stay the hand a bit” of the central bank, Buiter said in a speech to the Council of Mortgage Lenders annual conference. A currency crisis is “a risk but not highly likely” and “I still expect them to cut by 150 basis points” at the Dec. 4 decision.
Record-Low Yields
Policy makers will lower the benchmark rate from the current 3 percent by 1 percentage point, according to the median forecast of 60 economists in a Bloomberg News survey. Buiter correctly predicted last month that policy makers would cut the rate by 1.5 percentage points to the lowest level since 1955.
U.K. gilt yields declined to record lows as investors sought the relative safety of government assets.
The yield on the 30-year note fell 11 basis points to 3.96 percent, the lowest level since March 2006, as the government sold 2.25 billion pounds of debt maturing 2049. The yield on the 10-year note declined 12 basis points to 3.54 percent, the lowest since at least 1989, and the two-year yield dropped 19 basis points to a record 1.84 percent.
To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net
