BLBG: Pound Rises Against Euro, Dollar as Services Industry Climbs
The pound rose, headed for weekly gains versus the euro and the dollar, as a gauge of services industries climbed to a six-month high in March, adding to optimism the recession may be easing.
The currency was set for its biggest weekly advance against the euro since the end of January after the Group of 20 nations pledged to pump $1 trillion into the global economy. The FTSE 100 Index climbed 5 percent this week, led by a 12 percent gain in banking stocks. Two-year gilts headed for their first loss in three weeks as demand for the safest assets waned.
“The key for sterling is that we have to digest the reaction to the G-20 meeting, and that’s still an open question,” said Michael Klawitter, a currency strategist in Frankfurt at Dresdner Kleinwort. “There’s generally a high correlation between the financial services and sterling, given the importance of the sector to the economy as a whole.”
The British currency advanced to 90.64 pence per euro by 1:45 p.m. in London, from 91.44 pence yesterday and 92.81 pence a week ago. The pound climbed to $1.779 from $1.4725 and $1.4320 on March 27. The U.K. currency may trade between 90.50 pence and 92.50 pence per euro in the “next couple of weeks,” Klawitter said.
A U.K. index of service industries from airlines to insurers advanced to 45.5, from 43.2 in February, Markit Economics said today. A figure below 50 indicates a contraction.
‘Room to Hope’
The figure “rounds out a week of data which, while by no means heralding recovery, hints at the worst of the downturn being behind us,” Richard McGuire, a fixed-income strategist in London at Royal Bank of Canada, wrote in a client note. “There is perhaps room to hope the sharpest point of the financial sector adjustment has been passed.”
Gains by the pound may be limited after Lloyds Banking Group Plc’s Halifax division said U.K house prices fell 1.9 in March from the month before to an average of 157,326 pounds. House values dropped an annual 17.6 percent, Halifax said today.
The Bank of England cut the benchmark interest rate to a record low of 0.5 percent last month and started to buy bonds with newly created money to stimulate the economy, which shrank 1.6 percent in the fourth quarter, the most since 1980.
Gilts stayed lower as a report showed the U.S. jobless rate rose in March to the highest level in 25 years.
The two-year note yield increased one basis point to 1.35 percent. The 4.25 percent security due March 2011 fell 0.04, or 40 pence per 1,000 pound face amount, to 105.47. The 10-year yield fell one basis point to 3.36 percent. Bond yields move inversely to prices.
Yield Difference
The yield on the note, which is perceived to be safer than longer-dater securities, rose yesterday by the most since October after the G-20 statement boosted demand for higher yielding assets.
The note yielded 200 basis points less than 10-year gilts today, compared with 202 basis points yesterday. The difference in yield, or spread, was 238 basis points on March 4, the most since at least 1992.
British government bonds lost 2.3 percent this year compared with a decline of 1.7 percent for U.S. government debt, according to Merrill Lynch & Co.’s U.K. Gilts and U.S. Treasury Master Indexes.
