Pound Climbs to 10-Week High as House Prices Rise; Gilts Advance

The pound strengthened to a 10-week high against the dollar as an industry report showed U.K. house prices increased this month, boosting optimism the recovery is gathering momentum.

Sterling gained for a fourth day versus the U.S. currency after a government report last week showed Britain’s economy avoided a recession last quarter, damping speculation the Bank of England will boost stimulus. U.K. government bonds rose as Germany’s inflation rate slumped. Slower inflation enhances the value of the fixed payments from government securities.

“Investors have been very downbeat on their expectations of the U.K. economic performance so the recent data has been a surprise to the upside,” said Neil Jones, head of hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “There was a lot of anti-sterling sentiment. The data is proving to be slightly better than expected.”

The pound advanced 0.2 percent to $1.5504 at 4:21 p.m. London time after climbing to $1.5546 earlier, the highest level since Feb. 15. The four-day rally is the longest since Nov. 21. Sterling dropped 0.4 percent to 84.51 pence per euro after appreciating to 83.98 pence on April 26, the strongest since Jan. 24.

Average house prices in England and Wales increased 0.3 percent, matching the gain in March that was the biggest in three years, Hometrack Ltd. said in an e-mailed statement. Lloyds Banking Group Plc (LLOY) said a survey of U.K. businesses showed their confidence in the economy compared with three months earlier increased to 27 in April from 20 in March.

Exceeding Forecasts

The U.K. economy expanded 0.3 percent in the first quarter, the Office for National Statistics said April 25. The median forecast of economists in a Bloomberg News survey was for growth of 0.1 percent.

The pound has gained 1.5 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro gained 1.7 percent and the dollar weakened 0.7 percent.

The Bank of England next meets on May 8-9 after policy makers were split this month on whether to extend the 375 billion-pound asset-purchase program, or so-called quantitative easing, which tends to debase a currency.

JPMorgan Chase & Co. said last week money-market rates signal the central bank will increase its asset-purchase target by 70 billion pounds. The indications are from the bank’s own calculation based on derivatives linked to the sterling overnight index average, or Sonia.

While JPMorgan predicts the central bank will refrain from adding more stimulus next month, it predicts the bond-purchase program will be expanded by 50 billion pounds in August.

Gilts Gain

Ten-year gilts advanced for a second day as the German Federal Statistics Office said the annual inflation rate dropped to 1.1 percent in April, the lowest in more than 2 1/2 years.

The 10-year yield fell three basis points, or 0.03 percentage point, to 1.65 percent after dropping five basis points on April 26. The 1.75 percent bond due September 2022 rose 0.225, or 2.25 pounds per 1,000-pound face amount, to 100.84.

U.K. government securities returned 1.8 percent this year through April 26, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 1.1 percent and U.S. Treasuries earned 0.9 percent.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.