Pound Weakens Against Dollar After House Prices Fall; Gilts Gain

The pound weakened from within two U.S. cents of an eight-month high against the dollar after an industry report showed a gauge of house prices fell in April.

Gilts advanced as the Royal Institution of Chartered Surveyors said its index of house prices dropped to minus 19 from minus 11 in March. A reading below zero means more surveyors saw price declines than increases. Sterling rose against the euro amid concern Greece will withdraw from the currency bloc. Greek leaders will meet in Athens today after talks yesterday failed to forge a governing coalition following inconclusive weekend elections.

“It’s wrong that sterling is still being put in the safe-haven basket with the Swiss franc and Japanese yen,” said John Hydeskov, chief analyst at Danske Bank A/S in London. “In the near-term, pound-dollar may be heading back towards $1.60. There will be more focus on U.S. performance in the second half of the year.”

The pound dropped 0.3 percent to $1.6135 at 4:18 p.m. London time after rising to $1.6302 on April 30, the highest level since Aug. 31. Sterling appreciated 0.2 percent to 80.47 pence per euro. It climbed to 80.36 pence yesterday, the strongest since November 2008.

“The next big level in euro-sterling is around 80 pence” per euro, Hydeskov said. “The market is looking out for a test of that level within the next few weeks. The risk is still to the downside” for the common currency.

Greek Talks

Greece’s New Democracy leader Antonis Samaras said he failed to reach agreement to form a government. The attempt will pass to Alexis Tsipras, the head of Syriza, the second-biggest party, which has vowed to cancel bailout terms for the nation.

The euro may find support against the pound should the currency pair reach the October 2008 low at 76.94 pence, according to data compiled by Bloomberg. The common European currency may meet resistance at the 50-day moving average, currently at 82.67 pence, the data show.

Support refers to an area on a price chart where analysts expect orders to buy a currency to be grouped. A resistance level is an area where they anticipate sell orders will be clustered.

Sterling has appreciated 4.6 percent in the past three months, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 2.3 percent and the euro fell 0.1 percent.

BOE Meeting

Gilts rose as trading resumed after markets closed yesterday for a public holiday. The 10-year yield fell to within one basis points of a record low as investors sought the relative safety of U.K. government debt.

The 10-year yield dropped eight basis points, or 0.08 percentage point, to 1.93 percent. That’s the lowest level since Jan. 18, when it reached 1.917 percent. The 4 percent bond due March 2022 gained 0.77, or 7.70 pounds per 1,000-pound face amount, to 118.485.

Volatility in U.K. government securities was the fourth-highest of 24 developed-nation markets, according to measures of 10-year bonds, two- and 10-year yield spreads and credit-default swaps compiled by Bloomberg.

Bank of England policy makers will halt their bond-purchase program at 325 billion pounds at their monthly meeting on May 10, according to a Bloomberg News survey of economists.

Stimulus ‘Close Call’

In a survey, 43 of 51 economists forecast no change to the stimulus target. All 61 economists in a separate poll say the central bank will keep its key interest rate at a record-low 0.5 percent.

Former Bank of England official John Gieve said today the central bank may extend its asset-purchase program this week to support growth, though faster inflation makes the decision a “close call.”

The Debt Management Office plans to sell 2 billion pounds of 30-year gilts tomorrow. The U.K. will auction 2.75 billion pounds of 5 percent securities maturing in March 2025 on May 15 and gilts due in September 2014 in a so-called mini-tender on May 17, the debt office said today.

Gilts have handed investors a loss of 0.6 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries returned 0.5 percent and German bunds gained 1.7 percent, the indexes show.

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