SF: Pound Heads for Weekly Gain Against Euro on Signs of Recovery
June 4 (Bloomberg) -- The pound strengthened against the euro, set for a second weekly gain, after a report showed U.K. house prices rose, adding to evidence an economic recovery is gaining pace.
Sterling headed for its first weekly gain in a month against the dollar. The average cost of a home rose 6.9 percent in the three months through May from a year earlier, up from 6.6 percent in April, Lloyds Banking Group Plc's Halifax said today. Government bonds erased earlier losses after Bank of England Deputy Governor Charles Bean said the level of spare capacity created by the recession will counter inflation pressures. "People are becoming a little more positive on the U.K.," said Niels Christensen, a foreign-exchange strategist at Nordea Bank AB in Copenhagen. "We've had some good data and that has left sterling with a positive sentiment."
The pound rose 0.4 percent 82.91 pence per euro as of 12:12 p.m. in London, for a 2.3 percent gain this week. It climbed 0.1 percent to $1.4622 making it 1.1 percent stronger in the past five days and putting it on course for its first weekly gain since its 0.1 percent advance in the week to April 23.
The 10-year gilt yield held at 3.58 percent. It climbed to 3.618 percent yesterday, the most since May 27. The yield on the two-year note fell two basis points to 0.87 percent.
Britain's benchmark stock index fell 0.7 percent after climbing 1 percent earlier.
House Prices
The increase in U.K. house prices was less than the 7.4 percent predicted by economists in a Bloomberg survey. Prices declined from a month earlier. Nationwide Building Society said yesterday the average cost of a home increased in May to the highest level since July 2008.
Britain's currency has climbed 6.8 percent against the euro this year as reports showed the U.K.'s recovery from the worst financial crisis since World War II is gaining momentum.
The pound's gains may be limited and the currency will probably end the year at 84 pence per euro, Christensen said.
The Bank of England, which cut interest rates to a record low of 0.5 percent and bought 200 billion pounds of gilts to further depress borrowing costs, is scheduled to announce its next policy decision on June 10. The main rate will stay unchanged, according to all 45 economists polled by Bloomberg.
"While the exact margin of spare capacity in the economy must be open to debate, at this early stage of the recovery it is more likely than not that this will bear down on inflation for some time," Bean wrote in an article in The Daily Telegraph newspaper today.
--With assistance from Jennifer Ryan and Scott Hamilton in London. Editors: David Clarke, Colin Keatinge.
