Pound Gains Against Dollar as U.S. Stocks Sap Safety Demand; Gilts Drop

The pound strengthened the most in a week against the dollar as gains in U.S. equities damped demand for the U.S. currency.

Sterling weakened versus the euro amid speculation European leaders are stepping up efforts to combat the region’s sovereign debt crisis. Ten-year gilts pared a third consecutive weekly advance. The British currency was still set for its biggest weekly drop against the greenback in almost two months. The Standard & Poor’s 500 Index gained 0.5 percent as an index of U.S. leading indicators climbed more than forecast in October.

“There’s a more positive appetite for risk,” said Simon Derrick, the London-based chief currency strategist at Bank of New York Mellon Corp. “That tends to mean dollar down and sterling up.”

The pound was 0.2 percent stronger at $1.5782 at 4:45 p.m. London time, after gaining as much as 0.9 percent, the biggest intraday advance since Nov. 11. It has weakened 1.8 percent against the dollar this week, set for the biggest drop since the five days ended Sept. 23. Sterling depreciated 0.2 percent to 85.61 pence per euro, compared with 85.59 pence at the end of last week.

The pound has gained 2 percent in the past month, matching the dollar as the best performer among 10 developed-market peers measured by Bloomberg Correlation-Weighted Indexes.

‘Strong’ QE Case

The U.S. Conference Board’s gauge of the outlook for the next three to six months rose 0.9 percent, the biggest jump since February, after a 0.1 percent September increase, the New York-based research group said today. The median forecast of 56 economists surveyed by Bloomberg News projected the gauge would advance 0.6 percent.

Sterling appreciated against the dollar after Federal Reserve Bank of New York President William C. Dudley said the U.S. central bank can do more to boost the economy, raising the prospect of more asset purchases.

The British currency gained even after the Financial Times reported that Bank of England policy maker Martin Weale said there’s a “very strong case” for adding more stimulus to the U.K. economy unless the outlook improves. “If things evolve as the forecasts suggest” so-called quantitative easing could be stepped up in February, Weale said in an interview, according to the FT.

“There are two opposing forces” driving sterling, Derrick said. “Weak economic growth and the fact that we’re talking about more QE almost neatly offset the currency’s safe-haven appeal.”

The 10-year gilt yield was two basis points higher at 2.25 percent, after dropping as much as six basis points to 2.17 percent. The yield was at 2.29 percent on Nov. 11. The two-year yield fell two basis points to 0.48 percent, down from 0.54 percent at the end of last week.

Gilts have returned 15 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt has gained 8.3 percent and U.S. Treasuries rose 9.4 percent, the indexes show.

To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

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

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