BLBG: Pound Reaches Two-Week High on Bets U.K. Recovery Gathering Pace
The pound reached the strongest level in almost two weeks versus the dollar as reports showing U.K. house prices rose and consumer confidence held at a September 2007 high added to evidence of quicker growth.
Sterling headed for a weekly gain versus the U.S. currency as Bank of England Chief Economist Spencer Dale said policy makers will probably face a “healthy” split on when to raise interest rates. U.K. government bonds declined with German bunds as euro-area consumer prices rose more than analysts forecast.
“With any sort of confidence that starts to build, again being buoyed by the property market, that gives the pound a lift,” said Harry Adams, head of trading at Argentex LLP, a currency advisory company in London. “More rhetoric coming out of the Bank of England is gearing everyone up that U.K. interest rates will rise. The more rhetoric that comes up the further the pound pushes.”
The pound rose 0.2 percent to $1.6722 at 1:55 p.m. London time after reaching $1.6769, the highest level since Feb. 17. It has risen 0.6 percent this week after falling 0.8 percent the week before. Sterling slid 0.5 percent to 82.56 pence per euro.
Nationwide Building Society said home values increased 0.6 percent in February, a 14th monthly increase, reaching an average 177,846 pounds. From a year earlier, prices were up 9.4 percent.
Economy Outlook
A consumer confidence index by GfK NOP Ltd. stayed at minus 7 from January, the London-based group said today. That matched the median forecast of economists in a Bloomberg News survey. A gauge on the outlook for the economy remained at 2, the highest since September and up 27 points from a year earlier.
The pound has gained 12 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes amid speculation the strengthening economy will prompt the central bank to raise borrowing costs earlier than it projected. The euro appreciated 6.5 percent and the dollar rose 0.1 percent.
Britain’s economy grew 0.7 percent in the three months through December, the fourth straight quarter of expansion, the Office for National Statistics said on Feb. 26.
“As we go through this year and into next year, as the economy keeps growing and keeps developing, at some point different people will be thinking it’s more or less close to raising interest rates,” Dale said in a Bloomberg News interview in London yesterday. “It’ll be quite natural then to have greater dissent. I certainly expect to see greater dissent and I think it’ll be a healthy thing.”
European Inflation
The benchmark 10-year gilt yield rose four basis points, or 0.04 percentage point, to 2.72 percent. The 2.25 percent bond maturing in September 2023 fell 0.32, or 3.20 pounds per 1,000-pound face amount, to 96.125.
German 10-year bond yields climbed six basis points to 1.62 percent.
Euro-area consumer prices grew an annual 0.8 percent, the same pace as in the previous two months. That exceeded the median estimate of 0.7 percent in a Bloomberg News survey of 41 economists. The European Central Bank seeks a rate of just under 2 percent over the medium term.
“Euro markets are selling off quite aggressively,” said Jamie Searle, a fixed-income strategist at Citigroup Inc. in London. “People are pricing out any chance of a rate cut next Thursday from the ECB and the gilt market is simply following. Most people were expecting 0.6 percent or 0.7 percent, so anything either side of that was always going to cause a market reaction given the importance of inflation data with regards to the ECB decision.”
U.K. gilts returned 2.5 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities earned 2.6 percent and U.S. Treasuries advanced 2.1 percent.
To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
