Pound Gains Most in Two Months as Growth Quickens; Gilts Decline

The pound rose the most in two months against the dollar this week as confidence in Britain’s economic recovery was boosted by a revival in the housing market and falling unemployment.

Sterling advanced versus all but two of its 16 major counterparts before reports next week that economists said will show U.K. home prices increased this month and mortgage approvals climbed in November. Britain’s government bonds fell, pushing 10-year yields above 3 percent for the first time since September, as the Treasury said it’s considering making it easier for new banks and alternative finance providers to lend to smaller companies.

“We can understand the long position in sterling,” said Peter Rosenstreich, chief foreign-exchange analyst at Swissquote Bank SA in Zurich, referring to a bet that an asset will rise. “The U.K. economy may grow at a faster pace than forecast by policy makers. The prospect of Bank of England tightening getting pulled forward is increasing.”

The pound rose 1 percent this week to $1.6495 as of 5:25 p.m. yesterday in London, the biggest gain since the period ended Oct. 18. The currency climbed to $1.6578 yesterday, the highest since August 2011. Sterling gained 0.3 percent to 83.46 pence per euro after appreciating to 82.53 pence on Dec. 2, the strongest since Jan. 11.

Home Prices

A gauge of U.K. home prices jumped 0.7 percent in December, after increasing 0.6 percent the previous month, according to a Bloomberg News survey before Nationwide Building Society releases the data on Jan. 3. Mortgage approvals climbed to 69,700 in November, the highest since January 2008, a separate survey showed before Bank of England data the same day.

The U.K. jobless rate measured by International Labour Organization methods fell to a 4 1/2-year low of 7.4 percent in the three months through October, the Office for National Statistics said Dec. 18. Gross domestic product increased 0.8 percent in the third quarter, the Office for National Statistics said on Dec. 20.

The pound has gained 6.7 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes as a strengthening economy boosted speculation the Bank of England will raise interest rates sooner than it forecasts. The euro appreciated 4 percent, while the dollar fell 2.1 percent.

Gilts declined for a second week, with the benchmark 10-year yield rising 13 basis points, or 0.13 percentage point, to 3.07 percent. The 2.25 percent bond maturing in September 2023 fell 1.04, or 10.40 pounds per 1,000-pound face amount, to 93.14. The yield climbed to 3.08 percent yesterday, the highest level since July 2011.

U.K. government bonds lost 4.2 percent this year through Dec. 26, according to Bloomberg World Bond Indexes. German securities dropped 1.8 percent and Treasuries fell 3.3 percent.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

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

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