Pound Strengthens to Two-Year High Amid Growth Signs; Gilts Rise

The pound rose to the strongest level in more than two years against the dollar after reports showed U.K. house prices and industrial production increased and the trade deficit narrowed.

Sterling extended gains into a third day versus the U.S. currency as the data added to signs Britain’s recovery is gaining traction. Bank of England Governor Mark Carney said the economy still needed policy support and pledged to maintain vigilance over the risk of a bubble in the housing market. U.K. government bonds rose along with Treasuries as stock declines spurred demand for safer assets.

“Sterling looks likely to continue to grind higher against the dollar, even if the dollar looks a little oversold,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “People will be continuing to talk about a break or a test of $1.65 in the short term, even though we’ve only just broken through $1.64.”

The pound advanced less than 0.1 percent to $1.6437 at 1:48 p.m. London time after climbing to $1.6466, the highest level since August 2011. Sterling was little changed at 83.67 pence per euro after appreciating to 82.53 pence on Dec. 2, the strongest since Jan. 11.

The Royal Institution of Chartered Surveyors’ house-price index rose to 58 in November, the highest since June 2002, the group said, citing a survey of property surveyors. Industrial production increased 0.4 percent in October after climbing 0.9 percent the previous month, while the goods trade deficit narrowed to 9.73 billion pounds from 10.1 billion pounds, the Office for National Statistics said.

Pound’s Advance

The pound has gained 5.6 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 3.6 percent, while the dollar fell 0.5 percent.

“We need to provide a lot of stimulus, but that stimulus can create risks,” Carney, said in an interview on the “Charlie Rose” show aired on Bloomberg Television. “We need to take other steps in order to reduce those risks. If we don’t, we’re going to create bigger problems down the road or we’re going to have to pull back too soon on monetary policy.”

Gilts Advance

Ten-year gilt yields dropped the most in a week as a decline in European stocks and U.S. stock futures revived demand for fixed-income securities.

The yield on the benchmark 10-year gilt fell three basis points, or 0.03 percentage point, to 2.78 percent, the biggest decline since Dec. 3. The 2.25 percent bond maturing in September 2023 rose 0.255, or 2.55 pounds per 1,000-pound face amount, to 94.61.

The Stoxx Europe 600 Index of shares dropped 0.5 percent and futures on the Standard & Poor’s 500 Index expiring in December fell 0.3 percent.

The U.K. sold 1 billion pounds of inflation-linked gilts maturing in November 2047 at a real yield of 0.039 percent, compared with minus 0.234 percent at the previous auction of similar-maturity debt in May.

The Debt Management Office is scheduled to sell 4.5 billion pounds of 1.75 percent securities due in 2019 on Thursday. Investors and market makers both called for two further auctions of the security in the first quarter of next year, according to minutes of the DMO’s Dec. 9 consultation meeting released today.

Gilts declined 3.9 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities fell 1.7 percent and U.S. Treasuries dropped 2.7 percent.

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