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Pound Climbs Against Dollar as U.K. Retail Sales Beat Estimates

July 22 (Bloomberg) -- The pound posted its biggest gain in a week against the dollar after a report showed U.K. June retail sales rose more than economists predicted, damping concern that the economy might slip back into a recession.

Sterling approached its highest level since April against its U.S. peer as European reports suggested the region’s growth is outpacing the U.S. economy. Retail sales climbed 0.7 percent on the month, the Office for National Statistics said in London. Economists in a Bloomberg survey predicted a 0.5 percent gain. U.K. stocks advanced with their European counterparts after growth in Europe’s services and manufacturing industries unexpectedly accelerated in July.

“The retail numbers were very punchy,” said Paul Mackel, a director of currency strategy at HSBC Holdings Plc in London. “The European data set has been surprisingly strong and the pound is riding the coattails.”

The pound advanced 0.7 percent to $1.5262 as of 4:16 p.m. in London, after earlier climbing by 0.9 percent, the biggest gain since July 15. The British currency depreciated by 0.6 percent to 84.63 pence per euro.

Sterling may rise to $1.62 by year-end, Mackel said. The median estimate of 37 analyst predictions compiled by Bloomberg is for the currency to end 2010 at $1.47. Sterling advanced to $1.5472 on July 15, the strongest level since April 27.

The pound maintained gains against the dollar after U.S. reports showed more Americans than projected filed applications for unemployment benefits last week and sales of previously owned homes fell in June for a second month. Federal Reserve Chairman Ben S. Bernanke today said unemployment “is the most important problem” facing the U.S., a day after he said the central bank may attempt more monetary stimulus.

Gilts Fall

U.K. 10-year government bonds declined, erasing an earlier gain, as the FTSE 100 Index extended its advance. The 10-year gilt yield increased two basis points to 3.36 percent after being as low as 3.31 percent. The two-year yield was at 0.8 percent, also an increase of one basis point.

The Bank of England yesterday kept its benchmark interest rate at a record low of 0.5 percent yesterday and maintained its asset-purchase program at 200 billion pounds. The bank considered looser policy as the “softening in the medium-term outlook for GDP growth over recent months would put further downwards pressure on inflation, once the impact of temporary factors had waned,” minutes from its most recent meeting show.

‘More Stimulus’

“Central banks can’t rule out the possibility of more stimulus,” said Orlando Green, an interest-rate strategist at Credit Agricole Corporate & Investment Bank in London.

Gilts returned 5.8 percent this year, compared with a gain of 3.1 percent for bonds in the euro area, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt rose 6.6 percent, the indexes showed.

Investors reduced bets on the Bank of England raising rates this year. The yield on the short-sterling futures contract for December fell two basis points to 0.84 percent.

Britain’s currency has gained 5 percent against the euro this year on speculation that the U.K. economy will recover more quickly than the euro region.

U.K. gross domestic product probably rose 0.6 percent in the three months through June, twice the pace of the previous quarter, according to the median prediction of 32 economists polled by Bloomberg before tomorrow’s release.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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