BLBG: British Pound Climbs Against Dollar, Yen as Bank Stocks Jump
The pound advanced against the dollar after a stock sale by HSBC Holdings Plc stoked optimism the worst of the financial turmoil may be easing, boosting risk appetite and sending bank shares higher.
The currency also climbed against the yen. The FTSE 350 Banks Index rallied as much as 5.9 percent, extending four weeks of gains. HSBC, Europe’s biggest bank, said investors bought about 97 percent of the shares on sale in its 12.85 billion- pound ($19.2 billion) sale, the U.K.’s largest rights offer. Stocks in Asia and Europe rose.
“Sterling is benefiting quite significantly from the general air of optimism in the markets,” Ian Stannard, a senior currency strategist in London at BNP Paribas SA, said in a telephone interview today. “If cable breaks above $1.4975, that’s going to open the way for sterling to extend these gains up toward the $1.54 level.”
The pound rose to $1.4935 at 12:26 p.m. in London, from $1.4836 on April 3. It advanced to 150.97 yen, from 148.89. It strengthened for the seventh consecutive day against the euro, to 90.58 pence, from 90.84 pence, the longest run of gains since September.
HSBC today sold the remaining 172.7 million shares to new investors for 448 pence apiece, according to a person familiar with the transaction who declined to be identified because the terms aren’t public. HSBC advanced as much as 6.7 percent in London trading. Lloyds Banking Group Plc surged as much as 10 percent and Barclays Plc, both London-based, gained 6.9 percent.
Rules Implementation
Prime Minister Gordon Brown will meet with Bank of England Governor Mervyn King, Financial Services Authority Chairman Adair Turner, Chancellor of the Exchequer Alistair Darling and Trade Minister Mervyn Davies today to discuss how the U.K. should implement new financial rules laid out by leaders of the Group of 20 nations last week.
Brown wants to prod commercial banks into returning lending to 2007 levels. Banks are writing about a third of the mortgages they approved each month two years ago even after tapping the government for 40 billion pounds of support, according to Bank of England data.
The pound sank 26 percent against the dollar and 23 percent versus the euro last year as the U.K. slid into its worst recession since 1980 and the government was forced to rescue banks including Royal Bank of Scotland Group Plc and Lloyds.
Darling’s annual budget statement is due April 22. Yesterday the chancellor said the recession had been worse than he expected in November, suggesting the deficit will be wider than the 118 billion pounds predicted by the Treasury.
Pound Risk
U.K. auto sales slid 30.5 percent in March, the 11th consecutive decline, the Society of Motor Manufacturers & Traders said today in a statement. The slump contrasts with continental Europe, where government incentives are luring motorists back into showrooms.
The pound may tumble amid persistent “economic problems” in the U.K., MIG Investments SA said.
“Though the pound has performed splendidly over the past six weeks, the economic problems do not seem to be going away,” Paul Day, chief market analyst at MIG in Neuchatel, Switzerland, wrote in a note today. “The pound remains a currency that has the ability to collapse at some point in the future.”
Government bonds fell for a third day amid waning investor demand for the relative safety of fixed-income assets. The yield on the 10-year gilt rose three basis points to 3.46 percent. It earlier climbed to 3.48 percent, the highest level since March 25. The 4.5 percent security due March 2019 slid 0.28 or 2.8 pounds per 1,000-pound face amount, to 108.70. The two-year yield jumped five basis points to 1.46 percent. Bond yields move inversely to prices.
Credit Default Swaps
The Bank of England said it will buy 2.5 billion pounds of gilts today as part of its quantitative easing policy. Policy makers meet on April 9 to decide on interest rates. They are expected to leave the key rate unchanged at an all-time low of 0.5 percent, according to a survey of 62 economists by Bloomberg.
The cost of hedging against default on U.K. sovereign debt fell 15 basis points to 99 today, the lowest level since Dec. 1, according to CMA DataVision prices.
