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Pound Strengthens Against Euro as Consumer Confidence Improves

The pound advanced against the euro, heading for its first weekly gain in seven against the 16-nation single currency, after a report showed U.K. consumer confidence unexpectedly improved this month.

The U.K. currency reached its strongest level against the euro in three weeks after research group GfK NOP Ltd. said its confidence index rose one point to minus 19 in October, compared with the median forecast of a drop to minus 22 in a Bloomberg survey of 20 economists. Mortgage approvals were little changed in September, data from the Bank of England showed. Economists had forecast a decline. Sterling erased an earlier drop against the dollar, reaching the highest in two weeks.

“Sterling does seem to be developing some positive momentum,” said Adam Cole, head of global currency strategy at RBC Capital Markets in London. “It was helpful that consumer confidence was slightly firmer than expected.”

The pound strengthened 0.6 percent to 86.90 pence per euro as of 4:20 p.m. in London, heading for a weekly gain of 2.3 percent, the most since the week ending June 4. It gained as much as 0.7 percent earlier today to 86.81 pence, its strongest since Oct. 5.

Sterling appreciated 0.3 percent against the dollar to $1.6000, extending its weekly gain to 2 percent. It reached $1.6015, the highest level since Oct. 15. It fell earlier today as much as 0.4 percent to $1.5878.

The pound strengthened against 15 of its 16 most-actively traded peers this week after data released by the Office for National Statistics on Oct. 26 showed Britain’s economy grew twice as fast as forecast in the second quarter. Gross domestic product rose 0.8 percent after climbing 1.2 percent in the previous three months.

Budget Squeeze

Consumer confidence rose this month as sentiment held up before Prime Minister David Cameron’s coalition government unveiled the scope of its budget squeeze on Oct. 20.

“This small rise in consumer confidence for October is really only the prelude to what happens next,” said Nick Moon, managing director of GfK NOP Social Research. “Confidence has remained reasonably consistent since June, but this could change as the public comprehends the full impact of the government’s cuts.”

U.K. lenders granted 47,474 loans to buy homes, compared with 47,498 in August, the Bank of England said today. Economists forecast approvals would decline to 46,000, according to the median of 17 estimates in Bloomberg News survey. The number of home loans is about half that granted at the peak of the property boom in 2007.

GDP ‘Game-Changer’

Morgan Stanley analysts yesterday advised investors to buy the pound against the yen. Sterling rose 1.4 percent against the Japanese currency since Oct. 25, the day before the growth data was published. The pound traded at 128.86 yen, from 129.20 in New York yesterday.

“The recent gross domestic product data is potentially a game-changer for the pound,” Stephen Hull, head of global currency strategy in London, wrote in a research report.

UBS AG foreign-exchange strategists ended a recommendation to sell the pound versus the Norwegian krone after sterling appreciated. “Recent U.K. data has been surprisingly good,” making additional asset purchases by the Bank of England unlikely this year, they said in an e-mailed note.

The pound rose 0.3 percent to 9.4191 kroner. It gained as much as 0.9 percent earlier, reaching 9.4775 kroner, the most since Sept. 20.

Gilts Rise

Government bonds rose, with the 10-year gilt yield falling seven basis points to 3.08 percent. The 4.75 percent security due March 2020 rose 0.57, or 5.7 pounds per 1,000-pound ($1,599) face amount, to 113.48. The two-year yield fell four basis points, to 0.67 percent.

The 10-year gilt yield has climbed 13 basis points this week. It rose to 3.19 percent on Oct. 27, the highest level since Aug. 11, according to Bloomberg generic data. The two-year note yield has gained three basis points this week.

Gilts returned investors 7.8 percent since the end of 2009, beating a 7.7 percent gain from German debt, but less than the 8.4 percent return from U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

Foreign investors bought a net 8.51 billion pounds of U.K. government debt in September, a third monthly increase, according to Bank of England data published today.

The amount compared with a net purchase of 8.68 billion pounds in the prior month and 5.61 billion pounds in July.

The amount of gilts held by overseas investors rose to a record 274.45 billion pounds at the end of June from 243.58 billion pounds at the end of March, according to data from the Debt Management Office.

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