The pound strengthened against the dollar as a report showed U.K. consumer confidence rose in March from a record low, fueling speculation that the central bank may increase interest rates. Sterling strengthened versus the euro and gilts rose after German Finance Minister Wolfgang Schaeuble said Greece may have to seek debt restructuring. Nationwide Building Society’s index of sentiment gained to 44 from a revised 39 in February, which was the lowest since records began in 2004. Data yesterday showed unemployment fell in Britain, even as those claiming jobless benefits increased last month. “There are green shoots of an improvement in confidence,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “There’s an excessive amount of doom and gloom priced into sterling already.” The pound gained 0.4 percent to $1.6332 at 2:45 p.m. in London. It reached $1.6428 on March 8, the most since Jan. 19, 2010. The British currency traded 0.5 percent stronger at 88.37 pence per euro. U.K. joblessness, as measured by International Labour Organization methods, slipped to 7.8 percent in the quarter through February from 7.9 percent in November, the Office for National Statistics said yesterday. Payrolls rose to the highest in two years in the quarter. Figures this week also showed inflation was at twice the Bank of England’s 2 percent target, even as it slowed for the first time in eight months. Rate Increase Sterling has strengthened 0.4 percent this year, according to Bloomberg Correlation-Weighted Indexes, which measure the 10 most widely-traded currencies. It has trailed the euro’s 3.8 percent gain amid signs that the European Central Bank would raise rates faster than the Bank of England. The shared currency fell against 13 of its 16 most actively traded peers today. Should an audit of Greece in June question its ability to repay creditors, the nation would have to negotiate to ease its debt burden, since creditors can’t be forced to take losses until Europe’s permanent rescue system for the euro starts up in mid-2013, the Berlin-based Die Welt cited Schaeuble as saying in comments published today. The U.K. central bank kept its main rate at 0.5 percent on April 7, while the ECB increased its main refinancing rate to 1.25 percent from 1 percent. Investors have priced in a 25 basis-point gain in the key U.K. rate by September, according to forward rates on the sterling overnight interbank average, or Sonia, compiled by Tullett Prebon Plc. Gilts Rise U.K. government bonds rose today as concern about Greece’s finances drove demand for the safest debt, with the 10-year yield falling three basis points to 3.67 percent. The two-year yield was two basis points lower at 1.24 percent. “When peripheral yield spreads widen, we tend to see investment flows into gilts, which are seen as a safe asset because Britain shows it’s serious about fiscal consolidation,” said Matteo Regesta, a senior interest-rate strategist at BNP Paribas SA in London. Gilts outperformed their German counterparts this year, losing investors 0.7 percent since Dec. 31 through yesterday, according to indexes compiled by Bank of America Merrill Lynch. The German bunds index fell 2.8 percent, while U.S. Treasury returns were close to zero. The U.K. sold 2 billion pounds 2040 gilts today, attracting bids equivalent to 1.68 times the amount on offer. The securities were sold at an average yield of 4.23 percent. To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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