BLBG: Pound Trades Near Nine-Month High Against Dollar on Services
By Anna Rascouet
Aug. 5 (Bloomberg) -- The pound traded near a nine-month high against the dollar after services and manufacturing reports added to evidence that the recession is easing and Lloyds Banking Group Plc said provisions for bad loans peaked.
The pound was also near the highest in a month against the euro after data from the Chartered Institute of Purchasing and Supply and Markit showed services industries grew in July more than economists predicted and the Office for National Statistics said U.K. manufacturing unexpectedly jumped in June. Lloyds rose as much as 16 percent in London trading after it said impairments will fall in the second half.
“In terms of cyclical economic data it’s clear that the reacceleration is faster in the U.K. than in other parts of Europe, certainly in Japan, and sterling is benefiting in this environment,” said Martin McMahon, currency strategist at Credit Suisse AG in Zurich. “We expect it to continue outperforming the others for the rest of the month.”
The U.K. currency climbed 0.1 percent to $1.6951 as of 3:50 p.m. in London after reaching $1.7043 earlier, the strongest level since Oct. 21. The pound advanced 0.3 percent to 84.80 pence per euro.
The pound pared earlier advances after the Institute for Supply Management index showed U.S. service industries unexpectedly shrank at a faster pace last month.
Signs that Europe’s second-largest economy is emerging from the deepest recession since World War II helped propel the pound to a 17 percent gain versus the dollar this year and a 13 percent advance against the euro. U.K. house prices jumped 1.1 percent in July, almost twice as much as economists forecast, Lloyds’s Halifax division said today.
Bank of England
The Bank of England will end the asset-purchase program it started this year as the economy rebounds, according to firms that deal with the Treasury. The central bank said in March it would buy bonds to lower borrowing costs,
Eight of the 12 primary dealers surveyed by Bloomberg said the central bank won’t resume the program, after announcing a pause at its monthly meeting tomorrow. The bank already spent 125 billion pounds as part of the so-called quantitative easing plan. The Treasury gave it permission to use 150 billion pounds, about 10 percent of Britain’s gross domestic product.
“The Bank of England may have done enough,” said Jamie Searle, a fixed-income strategist in London at Citigroup Inc. “They will probably announce a pause and reassure the market they can step in and resume the program quickly if need be. Our view is they won’t need to because the economy is beginning to recover.”
Bank Recovery
The FTSE 350 Index of U.K. banks rose 23 percent this year as the nation’s biggest lenders showed signs of weathering the global slump. HSBC Holdings Plc, Europe’s biggest bank, posted an unexpected first-half profit on Aug. 3. Barclays Plc said the same day first-half earnings rose 10 percent and profit from investment banking almost doubled.
The pound tumbled 26 percent against the dollar last year as the global financial crisis forced Prime Minister Gordon Brown’s government to take control of lenders such as Royal Bank of Scotland Group Plc to avert their collapse.
The 10-year gilt yield will rise to 3.95 percent by year- end as record government debt issuance overwhelms investor demand, according to the median forecast of the 12 firms surveyed by Bloomberg. The Treasury is selling 220 billion pounds of bonds in the year ending March 2010, 50 percent more than fiscal 2009.
The yield on the 10-year gilt fell 3 basis points to 3.82 percent. The 4.5 percent security due March 2019 rose 0.22, or 2.2 pounds per 1,000-pound face amount, to 105.40. The two-year note yield was little changed at 1.29 percent.
To contact the reporter on this story: Anna Rascouet in London at arascouet@bloomberg.net
