The pound advanced to the strongest since November 2008 against the euro as investors bet an attempt to ease U.K. credit conditions will help spur Britain’s economy.
Sterling snapped a two-day decline against the 17-nation currency after Moody’s Investors Service cut Italy’s credit rating, adding to signs the region’s debt crisis is deepening. The Bank of England today released details of a new lending program, which it said may boost credit to companies and households by at least 80 billion pounds ($124 billion). U.K. government bonds rose for a second week.
“The announcement of the lending program could be having a positive impact on the pound by improving the outlook for the U.K. economy,” said Valentin Marinov, head of European group of 10 foreign-exchange strategy at Citigroup Inc. in London.
The pound appreciated 0.5 percent to 78.69 pence per euro at 4:04 p.m. London time after climbing to 78.63 pence, the strongest since Nov. 3, 2008. The U.K. currency rose 0.8 percent to $1.5545, poised for a weekly gain of 0.3 percent.
Sterling has appreciated 4.2 percent in the past year, the third best performer after the dollar and yen out of the 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The euro slid 7.1 percent.
The pound may extend gains to 76.95 per euro, near its high of October 2008, Barclays Plc technical analysts including Phil Roberts in London, wrote today in a note to clients.
U.K. banks will be able to borrow treasury bills from the Bank of England from Aug. 1 to use as collateral to fund lending into the economy, according to details of the central bank’s Funding for Lending plan published in London. The program is the latest in a series of measures introduced to help the economy fend off contagion from the euro-area debt crisis.
Gilts were boosted today as Moody’s cut Italy’s debt rating by two steps and a Chinese report showed growth in Asia’s largest economy slowed for a sixth quarter.
“There’s an underlying interest in core products including gilts today and that is a function of the risk backdrop,” said Eric Wand, a fixed-income strategist at Lloyds TSB Bank Plc in London. “We may see some profit-taking into the weekend but any dips in gilts will be well supported,” he said.
The 10-year yield was little changed today at 1.54 percent, having declined five basis points this week. The 4 percent bond due in March 2022 traded at 121.965. The yield dropped to 1.505 percent yesterday, the lowest level since June 1.
U.K. gilts have returned 3.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. They handed investors a gain of 17 percent last year as the European debt crisis worsened.
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