BLBG: Pound Exceeds $1.60 for First Time Since November on Stock Gain
The pound rose above $1.60 for the first time in almost seven months as speculation the worst of the financial crisis is over stoked demand for assets denominated in the British currency.
Sweden’s krona dropped versus all of its major counterparts after the Riksbank said it will strengthen its foreign currency reserve by borrowing 100 billion kronor ($13.2 billion). Sterling extended its gain from a 23-year low reached in January to 19 percent as the FTSE 350 Banks Index advanced.
“The pound is having a correction after being hammered hard last year,” said Brian Kim, a currency strategist in Stamford, Connecticut, at UBS AG, the world’s second-largest currency trader. “There’s some valuation argument.”
Sterling rose as much as 0.8 percent to $1.6047, the highest level since Nov. 5, before trading at $1.6024 at 9:42 a.m. in New York, compared with $1.5926 yesterday. The pound appreciated 0.8 percent to 87.09 pence per euro, from 87.81 pence. The yen advanced 0.2 percent to 94.89 per dollar, from 95.03.
The krona weakened 0.9 percent to 10.6535 per euro after the Riksbank said it will strengthen the foreign reserve by borrowing from the Swedish National Debt Office to “be prepared” for a “severe and prolonged” financial crisis.
Sweden’s debt office will fund part of the lending by selling the krona, Gareth Berry, an analyst in London at UBS, wrote in a research note to clients today.
Pound Versus Dollar
A 19 percent drop in the pound versus the dollar in the past 12 months made it attractive to investors who think government stimulus packages will pull the global economy out of the recession. Almost a quarter of the 220 fund managers surveyed by Bank of America-Merrill Lynch in May said the U.K. currency is undervalued.
“The view that sterling is gaining ground is becoming more prevalent,” said David Powell, a London-based currency strategist at the firm.
The pound climbed about 2.9 percent since it rose through its 200-day moving average versus the dollar on May 20, a sign to investors who use technical charts that it will extend its advance.
Those gains may be poised to sputter, the 14-day relative strength index indicates. The gauge was at 76.13 today, the sixth straight day above the 70 level that typically signals an asset may be poised to fall.
Demand for the safety of the yen weakened after the U.S. Conference Board said yesterday its index of U.S. consumer sentiment surged in May to 54.9, the highest level since September. An index of manufacturing in the central Atlantic region climbed to 4 this month, the Richmond Federal Reserve Bank reported.
U.S. Housing
Sales of existing houses, which account for more than 90 percent of the U.S. market, rose 2 percent last month to a 4.66 million annual rate, economists forecast before the National Association of Realtors’ report today. New-home sales increased 1.1 percent to a 360,000 annual rate, a separate Bloomberg survey showed before a Commerce Department report tomorrow.
“We are watching incoming housing data, especially if they will support renewed euphoria about the economy following the surprisingly strong consumer confidence report,” said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Japan’s second- largest lender. “Safe-haven currencies such as the yen and the dollar will weaken against emerging currencies.”
South Korean Won
South Korea’s won erased an earlier gain versus the dollar and weakened for a third day, declining 0.5 percent to 1,269.35 after North Korea threatened military action in response to the South joining an anti-proliferation program.
“A downturn in local stocks weighed on the won and those who sold dollars earlier turned to building long positions after the renewed threat from the North,” said Jo Hyun Suk, a currency dealer with Korea Exchange Bank in Seoul.
The New Zealand dollar fell 0.8 percent to 61.91 U.S. cents before the nation releases its annual budget tomorrow. Standard & Poor’s lowered its outlook on New Zealand’s AA+ foreign currency credit-rating to “negative” in January, citing challenges facing the economy.
“Coming into the budget, people have been staying away from the New Zealand dollar,” said Lauren Rosborough, a currency strategist at Westpac Banking Corp. in London. “But there is also a fade of the rally that we’ve seen recently.”
