The pound advanced for a fourth quarter versus the dollar, the longest winning streak in more than six years, before reports this week that analysts forecast will add to evidence the recovery is strengthening.
Gilts slid as data showed house prices in England and Wales rose in March for a 14th month even as a separate gauge revealed U.K. mortgage approvals fell to a four-month low in February. Further gains in sterling may be limited as the pound dropped against most of its 16 major peers this month. Bank of England policy maker Martin Weale said last week U.K. interest rates should increase if the economy continues to improve.
“The economic data suggest there’s further room for the pound to appreciate,” said Neil Jones, head of financial institutional sales at Mizuho Bank Ltd. in London. “Some people said sterling has already priced in a lot of news including possible rate hikes. I disagree. The Monetary Policy Committee is likely to be the first among major policy makers to raise rates and I don’t think the market has fully priced that in.”
The pound rose 0.3 percent against the dollar to $1.6680 at 4:25 p.m. London time, gaining 0.7 percent since the end of last year. The fourth quarterly advance is the longest since the period ended September 2007. The U.K. currency was little changed at 82.63 pence per euro, having strengthened 0.5 percent in the past three months, the third consecutive quarterly gain.
An index based on a survey of purchasing managers in the services industries was unchanged at 58.2 in March, according the median estimate of economists in a Bloomberg survey. The reading, due on April 3, has been above the 50 reading that divides contraction and expansion every month since January last year.
House prices in England and Wales rose 0.6 percent in March from the previous month, Hometrack Ltd. said today. Half of postal districts reported gains. Reports by Halifax and Nationwide Building Society later this week are also forecast to show house prices increased.
Futures traders increased their bets that the British pound will rise against the dollar to the highest since January last year, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the pound compared with those on a drop -- so-called net longs -- was 29,724 on March 25, compared with net longs of 25,536 a week earlier. That’s the most since Jan. 4, 2013.
Sterling has risen 10 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as improved economic data spurred bets the Bank of England will increase interest rates from a record-low 0.5 percent sooner than it had planned. The euro gained 7.8 percent, while the dollar weakened 0.6 percent.
That rally was pared this month as Federal Reserve Chair Janet Yellen signaled on March 19 that U.S. officials may increase rates six months after they end the central bank’s stimulus program, boosting the relative appeal of the dollar.
“As the economy recovers, the interest rate isn’t going to stay at half a percent indefinitely,” Weale was cited as saying in a Reading Post report last week. “While my best guess is any rises will be relatively gradual, the committee can’t give any guarantees about where interest rates will be.”
The pound looked increasingly vulnerable against the euro and dollar as the U.K. balance of payments deteriorated, wrote analysts at the Royal Bank of Scotland Group Plc. The bank predicted sterling will fall to $1.53 by the end of this year compared with the $1.63 median estimate of analysts surveyed by Bloomberg.
“While short-term capital flows on ‘MPC can tighten earlier than expected’ conviction can support sterling near term, the medium-term risks for the currency are undoubtedly growing,” RBS analysts, including London-based Paul Robson, wrote in an e-mailed note today. “Economic policy in the U.K. is driving a rapid deterioration in the current account deficit.”
The Debt Management Office said today it plans to hold 10 bond auctions and one sale of long-dated gilts (BRIT) via banks in the second quarter. The syndication, which will be for a gilt with maturity of 30 years or longer, is scheduled to take place in the second half of June.
The 10-year gilt yield rose two basis points, or 0.02 percentage point, to 2.74 percent, having fallen 29 basis points this quarter, the biggest drop since the three months through June 2012. The 2.25 percent bond due in September 2023 fell 0.12, or 1.20 pounds per 1,000-pound face amount, to 95.96.
The NYSE Liffe started trading of 30-year gilt futures today. The contract for June delivery dropped 0.4 percent to 108.24.
Gilts returned 2.3 percent this year through March 28, according to Bloomberg World Bond Indexes. Treasuries rose 1.7 percent and German securities gained 2.7 percent.
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