The pound rose above $1.62 to the highest level in almost nine months after reports showed house prices climbed the most in six years and mortgage approvals increased, adding to signs the economy is gaining momentum.
Sterling climbed to the strongest since January versus the euro after Bank of England Governor Mark Carney said last week that he saw no case for more stimulus that tends to debase a currency. U.K. government bonds dropped amid speculation Italian Prime Minister Enrico Letta can survive a challenge from former premier Silvio Berlusconi, damping demand for the safest fixed-income securities.
“U.K. data have been better than expected,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. This “makes it more unlikely that the BOE will add to their stimulus,” and that is helping the pound, he said.
The pound climbed 0.3 percent to $1.6190 at 4:26 p.m. in London after rising to $1.6203, the highest level since Jan. 3. Sterling gained 0.2 percent to 83.59 pence per euro after appreciating to 83.40 pence, the strongest since Jan. 17.
The U.K. currency will advance to 83 pence per euro by year-end, Commerzbank’s Karpowitz said.
Average home prices in England and Wales rose 0.5 percent in September, the most since May 2007, after gaining 0.4 percent in August, property researcher Hometrack said. Mortgage approvals increased to 62,226, the most since February 2008, from a revised 60,914 the previous month, the Bank of England said in a monthly report.
Prime Minister David Cameron brought forward the second phase of his “Help to Buy” program yesterday. The plan, which will provide government-guaranteed mortgages for buyers with a deposit of as little as 5 percent of the value of homes costing as much as 600,000 pounds, will commence three months earlier than planned.
The government may “come in for renewed criticism for stoking up an already strong housing market at a time when many other countries are actively using macro-prudential policies to cool house prices,” Adam Cole, head of Group-of-10 currency strategy at Royal Bank of Canada in London, wrote in a note to clients. “This is short-term positive for the pound, as are the broader upside surprises U.K. data continue to deliver.”
Futures traders last week reversed their bets that the pound would weaken against the dollar, figures from the Commodity Futures Trading Commission released Sept. 27 showed.
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 1,174 on Sept. 24, compared with net shorts of 6,310 a week earlier. Futures are agreements to buy or sell assets at a set price and date.
Carney told the Yorkshire Post last week that the central bank would consider expanding its bond purchases, known as quantitative easing, only if the economy faltered.
The pound has risen 6.6 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 5.6 percent, while the dollar weakened 0.6 percent.
Gilts reversed an earlier advance after Reuters reported that as many as 20 senators from Berlusconi’s People of Liberty party were prepared to leave the party if the ex-premier doesn’t back down.
Letta said yesterday he would seek a confidence vote on Oct. 2 to try to save his five-month-old administration after Berlusconi, a partner in the ruling coalition, withdrew his support and pulled his ministers from the cabinet.
“The situation in Italy was serious but the latest headlines suggested some form of political compromise will probably be reached,” said Nick Stamenkovic, a fixed-income strategist at RIA Capital Markets Ltd. in Edinburgh. “Gilts fell alongside bunds on the back of those headlines.”
The yield on the 10-year gilt rose one basis point, or 0.01 percentage point, to 2.72 percent after declining to 2.67 percent, the lowest level since Aug. 27. The 2.25 percent bond due in September 2023 fell 0.085, or 85 pence per 1,000-pound face amount, to 95.935.
The Bank of England said today foreign investors reduced their gilt holdings by 6.04 billion pounds in August, the most since June 2012. That followed a net purchase of 1.27 billion pounds in July.
Gilts lost 3.1 percent this year through Sept. 27, according to Bloomberg World Bond Indexes. German bunds dropped 1.5 percent and Treasuries fell 2.4 percent.