BLBG: Pound Reaches Five-Month High Against Dollar on Economy View
The pound rose to a five-month high against the dollar on signs the U.K. economy is recovering faster than some economists had forecast.
The British currency strengthened to the highest level in almost four weeks versus the euro as a report showed U.K. manufacturing expanded for a 10th straight month in July. Futures traders cut their bets that the pound will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed on July 30. The FTSE 100 Index of shares climbed the most in more than a week.
“There was a lot of bad news in the price of sterling and the economy is recovering,” said Daragh Maher, deputy head of global foreign-exchange strategy at Credit Agricole Corporate & Investment Bank in London. “The pound tends to benefit when risk is put back on the table.”
The pound rose 0.8 percent to $1.5807 at 11:09 a.m. in London after earlier touching $1.5815, the highest level since Feb. 17. Sterling appreciated 0.6 percent against the euro to 82.64 pence, its strongest level since July 5.
An index of U.K. manufacturing fell to a five-month low of 57.3 in July from 57.6 in June, the Chartered Institute of Purchasing and Supply and Markit Economics said in a statement in London today. Economists forecast a reading of 57, according to the median of 26 estimates in a Bloomberg News survey.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those betting on a gain, so-called net shorts, was 17,940 on July 2, compared with net shorts of 26,767 a week earlier.
Economic Reports
The pound has climbed 2.4 percent since a July 23 report showed the U.K. economy grew almost twice as much as economists forecast in the second quarter.
British economic data has beaten economists’ expectations since April, according to an index of economic surprises compiled by Citigroup Inc. The index was at 72.5 on July 30, down from an 11-month high of 119.3 on May 20.
The pound may reach $1.5970, the highest in almost six months, should it breach a key technical level, according to analysts at Commerzbank AG. Sterling, which broke above its 200- day moving average last week, “meets resistance at $1.5836, the top of its short-term channel,” Karen Jones, head of fixed- income, commodity and currency technical analysis in London, said today.
A sustained break above that level “targets $1.5970, the 61.8 percent Fibonacci retracement of the decline from $1.7044 in August 2009 to the May 2010 low at $1.4225,” Jones said in a telephone interview. The pound last surpassed $1.5970 on Feb. 3.
Gilts Fall
U.K. government bonds fell, pushing the yield on the 10- year gilt up four basis points to 3.37 percent. The 4.75 percent security due March 2020 dropped 0.37, or 3.7 pounds per 1,000- pound face amount, to 111.28. Two-year yields also climbed four basis points, to 0.81 percent.
Gilts returned 5.8 percent this year, compared with 6.3 percent for German bunds and 6.7 percent for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
The U.K. debt management office plans to sell 3.75 billion pounds of 2.75 percent 2015 notes tomorrow. It last sold the securities on June 2 when it attracted bids worth 2.34 times the notes on offer at an average yield of 2.27 percent.
