The pound posted its biggest monthly gain versus the dollar since October 2011 as a report showed British banks granted more loans for homes in March than analysts predicted, adding to signs the economy is improving.
Sterling fell versus the euro, extending its third monthly drop this year, after a report showed U.K. consumer confidence unexpectedly declined in April. Futures traders decreased their bets that the pound will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed last week. U.K. government bonds fell as the Debt Management Office sold 50-year inflation-linked gilts at a record-low yield.
“If you look at speculative positions, accounts are still fairly short the pound,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S (DANSKE) in Copenhagen, referring to a bet that the price of an asset will fall. “That’s been gradually scaled back and we can see potential for it to go even higher in the short term.”
The pound gained 0.3 percent to $1.5545 at 4:53 p.m. London time after climbing to $1.5546 yesterday, the most since Feb. 15. The U.K. currency gained 2.3 percent this month, the most since rising 3.2 percent in October 2011. Sterling slid 0.2 percent to 84.70 pence per euro. It lost 0.4 percent against the common currency in April.
Britain’s currency may weaken to $1.43 and 88 pence per euro in six months’ time, Danske Bank’s Kirkegaard said. The median predictions in Bloomberg surveys of economists and strategists is for sterling to end the year at $1.49 and 85 pence per euro.
U.K. lenders granted 53,504 mortgages last month, compared with a revised 51,947 in February, the Bank of England said. Economists had forecast an increase to 52,700 from an initially reported 51,653, based on the median estimate in a Bloomberg News survey.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain, so-called net shorts, was 60,112 on April 23, compared with 61,975 a week earlier, the CFTC said on April 26.
The pound has gained 1.3 percent in the past month, the third-best performer after the New Zealand dollar and the euro according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. Sterling is still down 3.1 percent this year.
A report last week showed Britain’s economy avoided a recession in the first quarter, damping speculation the Bank of England will boost stimulus measures, or quantitative easing.
Britain has experienced an “extremely sharp recession and pretty anaemic recovery” Bank of England policy maker David Miles was quoted as saying in the Belfast Telegraph. Miles has voted to increase the 375 billion-pound target for asset purchases every month since November.
The Bank of England’s Monetary Policy Committee next meets on May 8-9.
The 10-year gilt yield rose four basis points to 1.69 percent. The 1.75 percent securities due September 2022 fell 0.3, or 3 pounds per 1,000-pound face amount, to 100.5.
The U.K. sold 500 million pounds of index-linked gilts due in March 2062 at a so-called mini tender at a real yield of minus 0.213 percent, the lowest ever for a 50-year inflation- protected bond, and down from a rate of 0.04 percent at a previous sale via banks on May 29.
U.K. gilts returned 1.3 percent this month through yesterday, extending this year’s gain to 1.9 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds rose 1.1 percent in 2013 and U.S. Treasuries earned 0.9 percent.
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