BLBG: Pound Advances to Highest in Almost Two Weeks on Bank Plans
The pound rose to the highest level against the dollar in almost two weeks on speculation banks are stepping up efforts to shore up their finances.
Sterling advanced against the yen and euro as a person familiar with the matter said Royal Bank of Scotland Group Plc plans to cut costs by more than 1 billion pounds ($1.46 billion) and the Wall Street Journal reported the U.S. government may raise its holding in Citigroup Inc. U.K. government bonds fell as the FTSE 350 Banks Index jumped 4 percent, sapping demand for the safest assets.
“Equity sentiment has been buoyant, and that’s providing some support for the pound,” said Jeremy Stretch, a senior currency strategist at Rabobank International in London. “There’s still a number of question marks about the banking sector, and sterling’s resilience may be tested.”
The pound increased as much as 1.6 percent to $1.4662, the highest level since Feb. 10, before trading at $1.4628 at 12:31 p.m. in London, compared with $1.4433 on Feb. 20. Sterling gained 3 percent to 138.78 yen from 134.71 and appreciated 1.3 percent to 87.70 pence per euro from 88.91.
The pound may trade in a range of $1.44 to $1.46 today, Stretch said. The median forecast of 45 strategists in a Bloomberg survey is for the currency to appreciate to $1.50 by year-end.
RBS, the U.K.’s largest state-controlled lender, plans to split itself into two units and will scale back investment banking, a person familiar with the situation said.
Stocks Gain
Standard & Poor’s 500 Index futures expiring in March rose 1.9 percent. The FTSE 100 Index increased as much as 1.8 percent, rebounding from its lowest level since November.
The pound’s gains may be limited before a report this week that will show the economy shrank in the fourth quarter, making it more likely that the Bank of England will keep cutting interest rates, Stretch said.
The economy contracted 1.6 percent in the fourth quarter, according to the median forecast of 27 economists surveyed by Bloomberg. The Office for National Statistics is scheduled to release the data on Feb. 25.
A drop in government bonds pushed the yield on the 10-year gilt up three basis points, or 0.03 percentage point, to 3.45 percent. The 4.5 percent security maturing March 2019 fell 0.28, or 2.8 pounds per 1,000-pound face amount, to 108.90. The two- year yield gained one basis point to 1.50 percent.
The difference in yield, or spread, between the securities was 195 basis points today. It reached 229 basis points on Feb. 9, the highest in at least 17 years. The narrowing of the so- called yield curve indicates reduced demand for short-term notes, which are perceived to be safer.
U.K. bonds lost investors 1.8 percent this year, compared with a 2.7 percent decrease for Treasuries, according to Merrill Lynch & Co.’s U.K. Gilts and U.S. Treasury Master indexes.
