Pound Climbs as Investors Bet on QE Pause After Confidence Jumps

The pound rose to the most in more than seven months against the dollar as investors bet the Bank of England will hold off on extending stimulus after a report showed consumer confidence rose to the highest since June.

Sterling traded near the strongest in almost two years against the euro even after a report yesterday showed the U.K. economy unexpectedly slipped back into recession. A Nationwide Building Society index of sentiment for March climbed to 53, from 44 in February, adding weight to the argument for a pause in the central bank’s so-called quantitative-easing program. Federal Reserve Chairman Ben S. Bernanke yesterday repeated a plan to keep U.S. borrowing costs low until at least late 2014.

The U.K. currency’s strength stems from “the market moving to reduce further expectations of QE from the BOE so yield spreads were moving in the pound’s favor,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Markets had largely expected a weak GDP report and so had the Bank of England, so they won’t be placing too much emphasis on it. The upward trend of the last month is still in place but our view is that trend is not sustainable.”

The pound advanced for a ninth day, its longest gaining streak since January 2011. It rose 0.2 percent to $1.6188 at 11:10 a.m. London time, after touching $1.6207, the highest since Sept. 2.

Sterling added 0.2 percent to 81.65 pence per euro. It appreciated to 81.44 pence on April 24, the strongest level since Aug. 23, 2010. The U.K. currency traded 0.4 percent higher at 131.051 yen.

Pound Outlook

The median of eight estimates in a Bloomberg survey predicted consumer confidence would decline to 43. In a separate report, the British Bankers’ Association said U.K. mortgage approvals fell in March. That’s the lowest in 10 months.

Sterling has climbed 1.7 percent in the past month, the second-best performer after the yen among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro dropped 0.9 percent.

Bank of Tokyo-Mitsubishi estimates the pound will decline against the dollar and yen as economic fundamentals force the Bank of England to renew stimulus, Hardman said.

The pound “above $1.60 and sterling-yen above 130 look like relatively attractive entry levels for short positions against the pound,” he said.

U.K. 10-year bond yields fell three basis points to 2.11 percent. The 4 percent security due March 2022 rose 0.275, or 2.75 pounds per 1,000-pound face amount, to 116.715 percent of face value.

The Debt Management Office plans to auction as much as 3 billion pounds of bills tomorrow.

Gilts have handed investors a loss of 1.3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. That’s the third worst performance among 26 sovereign markets tracked by the indexes after Spain and Greece.

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

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

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