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Pound Gains as Growth Accelerates, Mortgages Rise; Gilts Advance

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Nov. 30 (Bloomberg) -- The pound rose for a fourth week against the dollar as it advanced to the highest in more than two years after data from gross domestic product to mortgage approvals added to signs U.K. economic growth is accelerating.

Sterling appreciated to the strongest level in more than three weeks versus the euro. A report yesterday showed British lenders granted 67,701 mortgages in October, the most since February 2008. That followed data two days earlier that revealed the economy expanded at a faster pace in the third quarter than in the previous three months. Government bonds advanced on bets Chancellor George Osborne will cut U.K. gilt issues.

“The market has been bullish on sterling given recent data has shown some improvement,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “The recovery may have come from a very low base, but it’s an improvement nonetheless. We see room for the pound to strengthen further, at least in the near term.”

The pound rose 0.9 percent to $1.6373 at 5:09 p.m. London time, the steepest advance since the period ended Oct. 18. It climbing to $1.6384 yesterday, the highest level since Aug. 30, 2011. The U.K. currency appreciated 0.5 percent to 83.10 pence per euro after reaching 83.05 pence yesterday, the strongest since Nov. 7.

The U.K. currency has strengthened 3.9 percent in the past month, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes amid bets an improving economy will prompt the Bank of England to raise interest rates. The euro rose 0.5 percent and the dollar gained 1.6 percent.

Housing Bubble

The U.K. economy grew 0.8 percent in the third quarter after expanding 0.7 percent in the previous three months, the Office for National Statistics said on Nov. 27.

The pound also gained after Bank of England Governor Mark Carney said on Nov. 28 that policy makers will stop the Funding for Lending home loans incentive to head off threats to financial stability from the housing market.

“The BOE is in no rush to hike rates but this move signals the start of what is likely to be a slow move towards a withdrawal of liquidity,” said Jane Foley, a senior currency strategist at Rabobank International in London. “We expect the pound to remain well supported against the euro, the dollar and the yen.”

Gilts advanced amid speculation Osborne’s Autumn Statement on Dec. 5, his end-of-year fiscal summary, will show that borrowing needs have eased due to stronger-than-expected growth.

The yield on 10-year gilts declined two basis points, or 0.02 percentage point, to 2.77 percent. The 2.25 percent bond due September 2023 gained 0.19, or 1.90 pounds per 1,000-pound face amount, to 95.585.

Gilts lost 3 percent this year through Nov. 28, according to Bloomberg World Bond Indexes. German securities fell 1 percent and Treasuries declined 2.3 percent.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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