BLBG: Pound Climbs to Four-Month High Against Dollar as Stocks Gain
The pound rose to an almost four-month high against the dollar as reports showed the drop in U.K. commercial property and construction markets is easing and stocks advanced.
Sterling climbed to the highest level versus the euro since April 22 as the Royal Institution of Chartered Surveyors said the rate of decline in demand for U.K. office and retail space eased in the first quarter, adding to optimism the recession may be waning. The FTSE 100 Index gained by the most in more than a week. Gilts fell as a separate report showed U.K. construction shrank at a slower pace in April.
“I’m reasonably confident we’ve passed the low point, and that’s underpinning the resilience in sterling,” said Jeremy Stretch, a senior currency strategist at Rabobank International in London. “Clearly stocks have had a good run, and the risk story is on.”
The pound gained as much as 1 percent to $1.5162, the highest level since Jan. 8, and was at $1.5119 by 5:20 p.m. in London. It strengthened 0.9 percent to 88.49 pence per euro.
Investors should still “be wary of chasing it too far,” and gains by the pound may stall at 88 pence per euro, according to Stretch.
The net balances for inquiries, demand and confidence in office and retail space were the least negative in a year, the Coventry, England-based RICS said today. That indicated “some hope the aggressive cuts in monetary policy have provided some limited support for the commercial markets,” RICS said.
Bank of England policy makers meet May 7 amid signs three interest-rate reductions this year to a record 0.5 percent are beginning to work. The central bank also started buying assets with newly created money to stimulate the economy.
Construction Boost
An index based on a survey of purchasing managers at building companies was at 38.1, the highest level since September, the London-based Chartered Institute of Purchasing and Supply and Markit Economics said. A reading below 50 indicates contraction.
An industry report last week showed manufacturing shrank in April at the slowest pace in eight months while the Bank of England said mortgage approvals rose in March to the highest level in 10 months.
The pound has the “potential for recovery against the euro because concern about Britain’s slump is overdone,” according to Dresdner Kleinwort-Commerzbank.
“It is becoming increasingly obvious that the scare stories about the economic development in Great Britain are exaggerated,” a team of currency strategists led by Ulrich Leuchtmann in Frankfurt wrote in a report today. “When euro- pound traded around 90-95 pence a considerable amount of risk premium had been priced in.”
The FTSE 100 Index added 2.2 percent, bringing its gain since March 3 to 24 percent. The FTSE 350 Banks Index jumped 7.7 percent as Standard Chartered Plc, the U.K. bank that gains almost all its profit from emerging markets, said it made a “strong start” to the year with record earnings and revenue in the first quarter.
Demand for riskier assets increased as other measures showed credit conditions are easing.
Libor Below 1%
The London interbank offered rate that financial companies charge each other, or Libor for three-month dollar loans, fell below 1 percent for the first time, according to the British Bankers’ Association. The Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed to 78 basis points, or 0.78 percentage point.
Gilts fell, pushing the two-year note yield two basis points higher to 1.08 percent. The 4.25 percent security due in March 2011 decreased 0.05, or 50 pence per 1,000-pound face amount, to 105.76. The 10-year yield rose one basis point to 3.55 percent. Bond yields move inversely to prices.
