Pound Rises a Third Week Versus Euro on Housing Market Optimism

The pound advanced for a third week against the euro as expansion in the property market boosted optimism the U.K’s economic recovery is strengthening.

Sterling reached a one-month high against the 18-nation currency as data showed U.K. house prices rose in December and mortgage approvals in November reached the highest level in almost six years. The U.K. currency fell for the first time in three weeks versus the dollar, after touching the highest level since August 2011, as reports showed construction cooled and a gauge of manufacturing unexpectedly declined last month. Ten-year government bonds rose for the first time in three weeks.

“There is still a robust recovery in the U.K., one that compares very favorably to the euro area,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The U.K. data will continue to generally support the pound but there is a risk that the market is over anticipating the strength of the U.K. data.”

The pound strengthened 0.6 percent this week to 82.86 pence per euro at 4:59 p.m. London time yesterday. It reached 82.71 pence a day earlier, the strongest level since Dec. 3. Sterling declined 0.4 percent to $1.6422 after reaching $1.6603 on Jan. 2.

Home prices gained 1.4 percent last month after rising a revised 0.7 percent in November, Nationwide building society said yesterday, a trend reflected by a separate Hometrack Ltd. survey published on Dec. 30. Mortgage approvals increased in November by the most since January 2008, the Bank of England said yesterday.

BOE Meeting

The pound has gained 5.7 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as improved economic data boosted bets the Bank of England will tighten monetary policy. The euro appreciated 2.6 percent, while the dollar fell 2.4 percent.

Policy makers will keep their key interest rate at a record-low 0.5 percent and their asset-purchase stimulus target at 375 billion pounds on Jan. 9, according to all of the economists in a Bloomberg News survey.

Gilts advanced for the first week in three, with the benchmark 10-year yield falling five basis points, or 0.05 percent, to 3.02 percent. The yield rose to 3.08 percent on Jan. 2, the highest level since July 2011. The 2.25 percent bond maturing in September 2023 rose 0.41, or 4.10 pounds per 1,000-pound face amount, to 93.55.

U.K. gilts handed investors a loss of 3 percent in the past year through Jan. 2, according to Bloomberg World Bond Indexes. German securities fell 1.4 percent and U.S. Treasuries declined 2.9 percent.

To contact the reporter on this story: Eshe Nelson in London at enelson32@bloomberg.net

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

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