BLBG: Pound Climbs to Four-Month High Against Dollar as Stocks Gain
The pound rose to the strongest against the dollar in almost four months as reports showed the drop in U.K. commercial property and construction markets is easing and the benchmark stock index advanced.
Sterling climbed to the highest level versus the euro since April 22 as the Royal Institution of Chartered Surveyors said the rate of decline in demand for U.K. office and retail space eased in the first quarter, adding to optimism the recession may be waning. The FTSE 100 Index rose to its highest level since January. Gilts fell as a separate report showed U.K. construction shrank at a slower pace in April.
“I’m reasonably confident we’ve passed the low point, and that’s underpinning the resilience in sterling,” said Jeremy Stretch, a senior currency strategist at Rabobank International in London. “Clearly stocks have had a good run, and the risk story is on.”
The pound gained as much as 0.7 percent to $1.5128, the highest level since Jan. 12, and was at $1.5106 at 12:54 p.m. in London. It advanced 0.7 percent to 88.64 pence per euro.
Investors should “be wary of chasing it too far,” and gains by the pound may stall at 88 pence to the euro, according to Stretch.
The net balances for inquiries, demand and confidence in office and retail space were the least negative in a year, the Coventry, England-based RICS said today. That indicated “some hope that the aggressive cuts in monetary policy have provided some limited support for the commercial markets,” RICS said.
Construction Boost
An index based on a survey of purchasing managers at building companies was at 38.1, the highest level since September, the London-based Chartered Institute of Purchasing and Supply and Markit Economics said. A reading below 50 indicates contraction.
Bank of England policy makers next meet May 7 amid evidence the cut in the benchmark interest rate to a record low of 0.5 percent is beginning to work. The central bank also started buying assets with newly created money to stimulate the economy.
An industry report showed last week that manufacturing contracted at the slowest pace in eight months in April while the Bank of England said mortgage approvals rose in March to the highest in 10 months.
The FTSE 100 Index jumped 2.7 percent, pushing the benchmark’s rebound since reaching its low this year on March 3 to 24 percent. The FTSE 350 Banks Index jumped 8.5 percent as Standard Chartered Plc, the U.K. bank that gains almost all its profit from emerging markets, said it made a “strong start” to the year with record earnings and revenue in the first quarter.
Demand for riskier assets increased as other measures showed credit conditions are easing.
Libor Below 1%
The London interbank offered rate that financial companies charge each other, or Libor for three-month dollar loans, fell below 1 percent for the first time, according to the British Bankers’ Association. The Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed to 78 basis points, or 0.78 percentage point, the lowest level since Sept. 1.
Gilts fell, pushing the two-year gilt yield two basis points higher to 1.09 percent. The 4.25 percent security due in March 2011 decreased 0.05, or 50 pence per 1,000 pound-face amount, to 105.73. The 10-year yield was little changed at 3.55 percent. Bond yields move inversely to prices.
