The pound rose against the dollar and the yen as stocks advanced after European Central Bank President Jean-Claude Trichet signaled his support for Greek government bond rollovers, lifting demand for riskier assets.
The U.K. currency gained versus the dollar for the third day in four. Data showed U.K. home prices rose 0.1 percent in May, following a 1.4 percent decline the previous month. Ten-year gilts fell as the U.K. Debt Management Office sold 1 billion pounds ($1.64 billion) of inflation-linked bonds due in March 2040. The FTSE 100 Index advanced 0.2 percent and the Standard & Poor’s 500 Index increased 0.5 percent. The pound weakened for a sixth day against the euro.
“The pound’s a touch stronger against the dollar, which looks relatively weak across the board,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The move against the yen suggests slightly improved risk appetite.”
The pound strengthened 0.5 percent to $1.6440 as of 4:29 p.m. in London. Sterling climbed 0.7 percent to 131.872 yen, and slipped 0.1 percent to 89.23 pence per euro.
Sterling touched its weakest level on record today in Bloomberg Correlation-Weighted Currency Indexes, a measure of 10 developed-market currencies.
Prime Minister David Cameron’s coalition government is pushing through the biggest spending cuts since World War II. The Bank of England has kept its main interest rate unchanged at a record-low 0.5 percent since March 2009 and bought 200 billion pounds of bonds under a so-called quantitative easing program that ended in February 2010. Policy makers will announce their latest decision on June 9.
“Sterling is looking a little bit firmer, but that data is still looking iffy,” said Steve Barrow, head of research for Group-of-10 currencies at Standard Bank Plc in London, referring to the U.K. housing data.
The 10-year gilt yield climbed six basis points to 3.33 percent, heading for its biggest daily gain since April 27. It reached 3.22 percent on June 3, the lowest since November 30. The 3.75 percent security maturing in September 2020 fell 0.50, or 5 pounds per 1,000-pound face amount, to 103.31. Two-year yields added two basis points to 0.90 percent.
Investors bid for 2.3 times the amount of index-linked gilts on sale, the DMO said. The bonds were allotted at a real yield of 0.587 percent.
Gilts have handed investors 2.5 percent this year after returning 7.6 percent last year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
They advanced amid optimism the government would control Britain’s record deficit after the coalition between Cameron’s Conservatives and Nick Clegg’s Liberal Democrats replaced the Labour party after last year’s election.
Gilt futures may rise as high as 121.91 should the price of the September 2011 contract breach a so-called resistance level at 121.03, UBS AG said, citing trading patterns.
“Gilts are bullish while they trade above the 119.87 mid-point,” Richard Adcock, head of fixed-income technical strategy at UBS in London, wrote in an e-mailed report today.
The long gilt future contract expiring in September slipped 0.5 percent to 120.00. It reached 121.03 on June 3, according to data compiled by Bloomberg.
“A break above Friday’s high at 121.03 will be the next bullish trigger, opening the door to our objective marked by the October extreme at 121.91,” Adcock wrote.