Pound Jumps Most in Two Weeks as Shell-BG Sparks U.K. Optimism

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The pound advanced the most in more than two weeks against the dollar as Royal Dutch Shell Plc’s deal to acquire U.K. natural-gas producer BG Group Plc boosted confidence in British assets.

Sterling rose against 12 of its 16 major peers amid speculation the 47 billion-pound ($70 billion) deal, one of the largest in the oil and gas industry for at least a decade, may prompt more mergers. The U.K. currency ended a two-day drop against the greenback, which came amid concern the May 7 general election may return no clear winner.

The deal “does seem to have boosted equity-market confidence in general and the pound in particular,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London. “However, you might find that the gains eventually unwind as political fears reassert themselves.”

The pound rose 0.9 percent to $1.4936 at 4:19 p.m. London time, the biggest increase since March 20. Sterling appreciated 1 percent to 72.32 pence per euro. The FTSE 100 Index of shares fell 0.3 percent after climbing as much as 0.7 percent.

Energy companies are looking to find ways to restore profits as they have been hit by an almost 50 percent drop in the price of Brent crude since the end of 2013. Shell, which is struggling to rebound from its worst production performance in 17 years, is willing to pay a premium of about 50 percent on the closing price of the third-largest energy producer based in the U.K.

GDP Optimism

While recent data has shown U.K. gross domestic product and services growth exceeded economists’ expectations, the uncertainty of the election outcome has overshadowed this for the pound.

A gauge of anticipated future price swings in sterling against the dollar has already increased the most among a basket of major currencies in the past month, damping the allure of the U.K. currency because it increases risk.

The pound has weakened 0.7 percent in the past month, the third-worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. Norway’s krone and Sweden’s krona fared worse.

U.K. government bonds were little changed before the Bank of England announces its latest policy decision on Thursday. Interest rates will be held at a record-low 0.5 percent on April 9, according to all 44 economists in a Bloomberg survey.

The 10-year yield was at 1.58 percent. The price of the 5 percent gilt due in March 2025 was 131.24 percent of face value. Two-year yields increased two basis points to 0.44 percent.

The U.K. Debt Management Office sold 4 billion pounds of five-year securities on Wednesday at an average yield of 1.185 percent. That compares to a yield of 1.167 percent at a previous auction on Jan. 20, which was the lowest since May 2013.

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