Bloomberg News

Pound Strengthens as Business Lobby Says U.K. to Avoid Recession

February 13, 2012

Feb. 13 (Bloomberg) -- The pound rose for the first time in four days against the dollar after the Confederation of British Industry said the U.K. will escape a technical recession this year, avoiding the need for more Bank of England stimulus.

Sterling was within one yen of the strongest in almost three months after the business lobby group said growth is resuming and “will pick up” during 2012. The forecast followed reports this month that showed a gauge of service activity climbed and house prices increased. The FTSE 100 Index of stocks advanced 0.8 percent, as Greek lawmakers approved austerity measures to obtain a financial rescue package.

“A lot of bearish news is priced into the pound,” said Audrey Childe-Freeman, global head of currency strategy at JPMorgan Private Bank in London. “Some of the U.K. data has been slightly better than expected recently, so we might have a period of wait-and-see from the BOE. A more favorable risk environment is helping the pound against the dollar.”

The pound appreciated 0.2 percent to $1.5778 at 4:32 p.m. London time after falling 0.4 percent last week. Sterling was little changed at 122.25 yen after rising to 123.18 yen on Feb. 10, the strongest since Nov. 14. It was also little changed at 83.76 pence per euro.

‘Signs of Optimism’

“Growth is starting again because we’ve got tentative signs of optimism,” CBI Director-General John Cridland said in a Bloomberg interview on Feb. 10. “We’re not assuming in our growth forecasts that there will be a further package of QE,” he said, referring to the Bank of England’s quantitative-easing program of bond purchases.

The pound has declined 1.4 percent this year according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. Sterling has fallen 4 percent in the past 12 months.

An index of U.K. services rose to 56 in January, the most since March, from 54 in December, Markit Economics and the Chartered Institute of Purchasing and Supply said Feb. 3. House prices climbed 0.6 percent in January, Halifax said Feb. 6.

The BOE announced an additional 50 billion-pound round of bond purchases on Feb. 9 after gross domestic product fell 0.2 percent in the last three months of 2011. The Monetary Policy Committee held its benchmark interest rate at a record-low 0.5 percent the same day.

The stimulus is aimed at preventing inflation falling below the central bank’s 2 percent target amid what it says is a “weak outlook” for growth.

Inflation Slowed

Inflation slowed in January to the least since November 2010, according to a Bloomberg survey before the Office for National Statistics report tomorrow. Consumer prices rose an annual 3.6 percent after a 4.2 percent gain in December, the survey showed. The central bank will release new economic and inflation forecasts on Feb. 15.

The yield on the 10-year gilt increased one basis point to 2.12 percent. The 3.75 percent bond due September 2021 dropped 0.105, or 1.05 pounds per 1,000-pound face amount, to 114.015. The two-year yield was little changed at 0.39 percent.

The pound may weaken as much as 9 percent against the dollar during the next three months, should it decline below a level of support, SEB AB said, citing trading patterns.

Sterling may drop to $1.44 if it falls below its 55-day moving average, Stockholm-based chief technical analyst Anders Soederberg said today by telephone.

“If we manage to break out of the current range, we could rapidly end up at $1.44-$1.45,” he said.

The pound’s 55-day moving average is $1.5603. Sterling last traded at $1.44 in June 2010.

--With assistance from Scott Hamilton in London. Editors: Daniel Tilles, Nicholas Reynolds

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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