Pound Little Changed Versus Euro as British House Prices Climb

The pound was little changed against the euro following last week’s drop as an industry report showed U.K. house prices increased for a ninth month in October.

Britain’s currency was within two U.S. cents of a four-week high versus the dollar as the data added to evidence the economy is strengthening. Gross domestic product grew 0.8 percent in the third quarter, the most since 2010, the government said last week. British government bonds were little changed.

“The U.K. data should continue to be pretty good,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “The GDP data last week were pretty strong, so this is something which could lead to some more sterling strength.”

The pound traded at 85.45 pence per euro at 4:26 p.m. London time, after depreciating to 85.55 pence on Oct. 24, the weakest level since Aug. 29. It slid 0.9 percent last week. Sterling dropped 0.2 percent to $1.6132 after rising to $1.6257 on Oct. 23, the highest since Oct. 1.

Average home values in England and Wales rose 0.5 percent this month, matching September’s increase, Hometrack said in a statement. They’ve climbed each month since stagnating in January. Annual price inflation accelerated to 3.1 percent, the most since November 2007, according to the London-based property researcher.

Millions of U.K. commuters were told to stay at home and more than 220,000 properties lost power as southern England’s worst storm since 2008 blocked rail tracks, severed electricity cables and closed a nuclear power plant.

Best Performer

The pound gained 3.1 percent in the past three months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, on optimism economic growth was quickening. The euro rose 1.9 percent, while the dollar weakened 2.3 percent.

Under its forward-guidance policy announced Aug. 7, the Bank of England pledged to keep the benchmark interest rate at 0.5 percent at least until unemployment falls to 7 percent, subject to caveats on inflation and financial stability. Officials are preparing new quarterly forecasts for growth and inflation, which Governor Mark Carney will present on Nov. 13.

“The forecasts that form the basis of the report appear set to show an upgraded growth outlook and a bringing forward of the unemployment rate threshold by one or two quarters compared to the previous forecast,” Paul Robson, a London-based foreign-exchange strategist at Royal Bank of Scotland Group Plc, wrote in a note to clients today. “The focus now turns back to whether this solid pace of expansion can continue.”

The pound will “benefit” from any significant change to the BOE’s forecasts, he wrote.

U.K. Growth

The U.K. economy expanded 0.8 percent in the third quarter, up from 0.7 percent growth between April and June and the most since the second quarter of 2010, the Office for National Statistics said on Oct. 25.

The benchmark 10-year gilt yield was at 2.61 percent after falling 10 basis points, or 0.1 percentage point, last week. The price of the 2.25 percent bond due in September 2023 was at 96.895.

The extra yield investors demand to hold 10-year gilts instead of similar-maturity German bunds was 86 basis points, up from 51 basis points at the end of 2012.

“We see gilts as likely to remain vulnerable to better economic data,” Gary Dugan, Singapore-based chief investment officer for Asia and the Middle East and Alan Higgins, London-based U.K. chief investment officer for Coutts & Co. wrote in a note to clients today. “We continue to expect them to underperform their peers in Europe, where growth is more sluggish.”

Gilts lost 2.2 percent this year through Oct. 25, according to Bloomberg World Bond Indexes. Treasuries fell 1.8 percent and German securities slid 1.4 percent.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

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

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