BLBG:Pound Strengthens Against U.S. Dollar After Retail Sales Index Increases
The pound appreciated toward a three-week high against the dollar after an index of U.K. retail sales climbed in February, boosting speculation the nation will avoid a recession.
Sterling has strengthened 1.9 percent against the greenback this year as data signalled the economy is stabilizing. The budget deficit for the first 10 months of the fiscal year was less than economists forecast, a report showed Feb. 21. An index of U.K. factory orders rose to a six-month high in February, data two days later showed. Ten-year (GUKG10) gilts rose for a sixth day.
“After a contraction in the economy in the fourth quarter, the economy has started the year on a slightly more promising note,” Audrey Childe-Freeman, global head of currency strategy at JPMorgan Private Bank in London, said before the retail-sales report. “Coupled with a still upbeat near-term euro-dollar outlook this should add on to the bullish case” for the pound against the dollar, she said.
The pound rose 0.2 percent to $1.5847 at 12:14 p.m. London time after advancing to $1.5902 yesterday, the strongest level since Feb. 8. The U.K. currency weakened 0.2 percent to 84.85 pence per euro.
The Confederation of British Industry’s gauge of annual sales growth increased to minus 2, the highest in eight months, from minus 22 the previous month, the London-based business lobby said in a report. That compared with a median estimate of minus 12 in a Bloomberg News survey of economists.
Improving Data
Sterling dropped for the first time in three days versus the euro before the European Central Bank allots a second round of three-year loans tomorrow to boost liquidity at the region’s banks. The pound’s decline against the euro gives investors an opportunity to buy the U.K. currency, according to strategists at Citigroup Inc.
After giving euro-region banks a record 489 billion euros in its first refinancing operation on Dec. 21, the Frankfurt- based ECB will probably lend them another 470 billion euros this week, according a Bloomberg News survey. The loans will be allotted at 10:15 a.m. London time tomorrow.
The U.K. currency has dropped 1.1 percent against the euro since Feb. 21, the day before Bank of England minutes showed two policy makers voted for a larger increase in asset purchases than agreed at this month’s meeting.
Buying Opportunity
“The sell-off in sterling following the BOE minutes provides an opportunity to buy it against the euro,” Valentin Marinov and Greg Anderson, senior currency strategists at Citigroup Inc., wrote in a report dated yesterday.
The strategists recommended investors buy the pound at 84.73 pence per euro, with a target of 82.50. They should exit the trade if it weakens to 85.55 pence per euro.
Sterling has dropped 1.8 percent in 2012, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar declined 3.9 percent and the euro gained 0.1 percent, the indexes show.
The 10-year gilt yield fell three basis points to 2 percent. The 3.75 percent security due September 2021 rose 0.255, or 2.55 pounds per 1,000-pound face amount, to 115.075.
Gilts have handed investors a 0.7 percent loss this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German government bonds returned 0.2 percent, the indexes show.
To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
