Bloomberg News

Pound Advances After Consumer Confidence Increases as Gilts Fall

June 01, 2013

The pound climbed versus the dollar for the first time in four weeks after data showing house prices and consumer confidence increased added to evidence of an improving economy and spurred demand for U.K. assets.

Sterling advanced against most of its 16 major peers after the British Chambers of Commerce revised upward its forecasts for U.K. growth through 2015. House prices increased the most in 18 months in May, Nationwide Building Society said on May 30. Data last month confirmed the U.K. economy grew 0.3 percent in the first quarter, avoiding a triple-dip recession after a contraction in the previous three months. Gilts fell.

“We’ve seen some moderately encouraging signs on the economy this week,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “There’s been a little bit of a lift in sterling. There’s a perception that people were too short on the currency and we’ve seen a move higher.”

A short position is a bet that an asset will drop in value.

The pound climbed 0.3 percent in the week to $1.5177 at 5:17 p.m. London time yesterday when it touched $1.5240, the highest level since May 21. Sterling was little changed at 85.45 pence per euro.

A sentiment index published by GfK NOP Ltd. climbed 5 points to minus 22, the strongest reading since November, the research company said in a report yesterday.

U.K. Growth

U.K. gross domestic product will rise 0.9 percent this year, 1.9 percent in 2014 and 2.4 percent in 2015, compared with previous forecasts of 0.6 percent, 1.7 percent and 2.2 percent respectively, the BCC, a London-based industry group said in an e-mailed statement yesterday.

The Bank of England’s Monetary Policy Committee will keep its bond-purchase program unchanged at 375 billion pounds when it meets on June 6, according to the median estimate analysts in a Bloomberg survey. It will also hold the benchmark interest rate at a record-low 0.5 percent, a separate survey shows.

Sterling climbed 2.6 percent in the past three months, making it the best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. currency gained 2.4 percent and the euro strengthened 1.7 percent.

Ten-year gilt yields climbed 11 basis points, or 0.11 percentage point, to 2 percent in the week. The 1.75 percent security due September 2022 fell 0.88, or 8.80 pounds per 1,000-pound face amount, to 97.88. The 10-year yield has risen 31 basis points since April 30 and reached 2.03 percent on May 29, the highest level since March 11.

U.K. government bonds lost 2.2 percent last month through May 30, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds dropped 1.5 percent and U.S. Treasuries declined 1.8 percent.

Securities in the Bank of America Merrill Lynch Global Broad Market Index fell 1.4 percent last month through May 30, poised for the steepest loss since April 2004.

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

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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