The pound rose for a second day versus the dollar, reaching the strongest level in more than a week, as an industry report showed British house prices jumped the most in 18 months in May.
U.K. government bonds advanced, trimming their worst monthly loss since December 2009, as a decline in Japanese stocks boosted demand for the perceived safety of fixed-income assets. Home prices rose 1.1 percent from a year earlier, the most since November 2011, the Nationwide Building Society said in an e-mailed statement. They climbed 0.4 percent from April to an average 167,912 pounds ($255,300).
“The recovery in the U.K. economy is patchy, but it’s gradually going in the right direction,” said Neil Jones, the London-based head of European hedge-fund sales at Mizuho Corporate Bank Ltd. “I see the recovery in the housing market as a manifestation of that. The demand for sterling should be well underpinned.”
The pound advanced 0.5 percent to $1.5199 at 4:28 p.m. London time after rising to $1.5217, the most since May 21. The U.K. currency weakened 0.3 percent to 85.80 pence per euro.
Sterling has gained 2.1 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The pound has still weakened 2.9 percent this year, the worst performer after the yen and Australian dollar, the indexes show.
The U.K. housing market is “gradually” gaining momentum, the Nationwide said today. Bank of England Governor Mervyn King said this month that an economic recovery is in sight as officials raised their forecast for growth.
The central bank has extended its Funding for Lending Scheme to give lenders access to cheaper credit and kept interest rates at a record low to support the recovery.
Data tomorrow will show mortgage approvals increased to 54,600 in April from 53,504 in March, according to a Bloomberg News survey of economists. The Bank of England will publish the data at 9:30 a.m. in London.
The pound may resume its decline against the dollar as policy makers will probably keep their “dovish” tone before the arrival of new governor Mark Carney in July, Morgan Stanley strategists led by Hans Redeker in London wrote in a client report today.
“The sterling-dollar rebound has triggered the take-profit stop on our short position and we now expect a further recovery in the near term,” the report said. “We view this rebound as corrective and we look for renewed selling opportunity in the $1.5820 area.” A short position is a bet an asset will decline.
Sterling will fall to $1.51 by the end of June and decline to $1.49 by the end of 2013, according to the median of analysts’ forecasts compiled by Bloomberg News.
Ten-year gilt yields dropped from the highest level in more than two months as Japan’s Nikkei 225 Stock Average (NKY) plunged 5.2 percent, entering a correction after declining more than 10 percent from its recent peak.
The 10-year gilt yield fell four basis points, or 0.04 percentage point, to 1.96 percent after rising above 2 percent yesterday for the first time since March. The 1.75 percent security due in September 2022 rose 0.345, or 3.45 pounds per 1,000-pound face amount, to 98.235.
U.K. gilts lost 2.4 percent this month through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds dropped 1.6 percent and U.S. Treasuries declined 1.8 percent.
Securities in the Bank of America Merrill Lynch Global Broad Market Index have fallen 1.5 percent in May, poised for the steepest loss since April 2004.