Pound Rises to 4-Year High on Growth Bets, Takeover Deals

The pound advanced to a four-year high versus the dollar as prospects for stronger economic growth and a wave of mergers and acquisitions boosted demand for the British currency.

Sterling rose for a third day versus the U.S currency before data tomorrow that economists said will show gross domestic product increased at the fastest pace since 2010 in the first quarter. U.K. government bonds fell as reports showed growth expectations reached the highest in more than 10 years and house prices rose. Pfizer Inc. said it’s interested in a deal to buy AstraZeneca Plc, Britain’s second-biggest drugmaker.

“GDP figures are out tomorrow and with good news people have decided to test recent highs” for the pound, said Stuart Bennett, head of Group-of-10 foreign-exchange strategy at Banco Santander SA in London. “The market is still quite long sterling, it’s a crowded trade at the moment and it’s going to take a lot to jump higher.” A long position is a bet that an asset price will rise.

The pound gained 0.1 percent to $1.6815 at 4:40 p.m. London time after climbing to $1.6858, the highest level since November 2009. Sterling was little changed at 82.34 pence per euro.

With Britain’s economic growth gathering momentum, investors have set up the most trades since 2011 to benefit from the pound’s advance, according to data from the Commodity Futures Trading Commission. Bets by hedge funds and other large speculators on a rise in the U.K. currency exceeded those on a decline by 47,800 contracts as of April 22, and the previous week’s net longs were 50,598, the most since February 2011.

Economy Expands

U.K. GDP rose 0.9 percent in the first quarter, up from 0.7 percent in the final three months of 2013, according to the median of estimate in a Bloomberg News survey of economists before the data is released tomorrow. It would be the strongest performance since the second quarter of 2010.

The Confederation of British Industry said today its composite survey indicator showed growth gathered pace in April and expectations for the next three months are the strongest since the data began in 2003.

House prices in England and Wales increased for a 15th month in April, rising 0.6 percent, Hometrack Ltd. said. Forty-eight percent of U.K. postcodes recorded an increase, the highest proportion in a decade, it said.

Sterling also strengthened as Pfizer said it’s still interested in a deal to buy AstraZeneca in what would rank as the biggest-ever U.K. takeover after a January proposal was spurned.

Corporate Flows

“The pound seems supported on market expectations of supportive corporate flow,” said Valentin Marinov, head of European G-10 currency strategy at Citigroup Inc. in London. “Improving data out of the U.K. this week could further boost sterling sentiment.”

Sterling has climbed against all but two of its 16 major peers this month amid an increase in mergers and acquisitions activity.

Novartis AG said on April 22 it would buy London-based GlaxoSmithKline Plc’s cancer-drug unit for as much as $16 billion, sell its vaccines unit to Glaxo for as much as $7.1 billion and sell its animal-health unit to Eli Lilly & Co. for $5.4 billion. Glaxo and Novartis also will form a consumer-health joint venture. Glaxo shareholders will get 4 billion pounds returned to them following the second-biggest U.K. deal this year.

The sale of Vodafone’s stake in Verizon Wireless to Verizon Communications for $130 billion in February led to speculation of inflows into the U.K. currency.

Pound Rally

“The M&A news has certainly been a catalyst for the edge up in cable,” said Harry Adams, head of trading at Argentex LLP, a currency advisory company in London, referring to the pound-dollar exchange rate. “It will continue to rally in the lead up to GDP. If GDP prints above 1 percent, $1.70 is likely to be hit by mid-week as the dollar is likely to continue to underperform.”

Sterling has rallied 5.5 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 1.3 percent and the dollar rose 0.8 percent.

Benchmark 10-year gilt yields increased three basis points, or 0.03 percentage point, to 2.67 percent. The 2.25 percent bond maturing in September 2023 fell 0.245, or 2.45 pounds per 1,000-pound face amount, to 96.55.

The U.K. Debt Management Office is scheduled to sell 3.5 billion pounds of bonds maturing in September 2024 tomorrow.

Gilts returned 3.2 percent this year through April 25, according to Bloomberg World Bond Indexes. German securities earned 3.1 percent and U.S. Treasuries gained 2.2 percent.

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