Pound Jumps on Investment Signal as Japanese Insurer Buys Amlin

  • MS&AD Insurance Group Holdings to buy Amlin for $5.3 billion
  • Extends recovery versus euro with policy divergence intact

The pound advanced versus the dollar, posting the biggest two-day gain in almost three months, amid speculation that a Japanese company’s purchase of a U.K. insurer signals more inflows into Britain’s economy.

Sterling also jumped for a second day against the yen as MS&AD Insurance Group Holdings Inc. agreed to buy Lloyd’s of London insurer Amlin Plc for about 3.47 billion pounds ($5.3 billion). Sterling jumped versus most of its 16 major peers, climbing to its strongest level against the dollar in more than a week.

The corporate news provided support for the pound at a time when investors were questioning the likelihood of the Bank of England raising interest rates as soon as it had signaled, amid signs the economic recovery was losing momentum. That had contributed to an nine-day slide versus the dollar through Sept. 4, which was longest since 2008. The BOE’s monetary-policy decision is due in two days’ time and investors’ focus will center on the minutes for clues for a rate increase.

“The gains in sterling have been contradictory to how the data has
played out, so the moves we are seeing must be due to an external sector,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “When you see the M&A news over the last few days then you could argue there has been positive bias potentially toward sterling as a consequence. The subtext is continuing to be that if you do see euro-sterling in the upper 73s that’s probably a good level to sell.”

The pound gained 0.6 percent to $1.5367 as of 4:24 p.m. London time, taking its advance over the past two days to 1.3 percent, the most since the period through June 18. It jumped 1 percent versus the yen and strengthened 0.5 percent to 72.78 pence per euro.

The central-bank policy decision will be preceded on Wednesday by data that economists surveyed by Bloomberg said will show a rebound in industrial production growth to 0.1 percent in July, after a drop of 0.4 percent the month before. Other reports on the same day will show manufacturing expanded at the same pace as in June, according to a separate Bloomberg survey.

“A more dovish message is expected” from the BOE, Josh O’Byrne, a London-based strategist at Citigroup Inc, wrote in a client note. “While we remain constructive on GBP, lacking immediate positive catalysts, near-term performance could be uninspiring.”

U.K. government bonds declined for the first time in seven days, with benchmark 10-year gilt yield rising four basis points, or 0.04 percentage point, to 1.84 percent. The 2 percent bond due in September 2025 fell 0.33, or 3.30 pounds per 1,000-pound face amount, to 101.44.

Gilts returned 2 percent this year through Monday, outperforming Treasuries, which earned 1.3 percent, according to Bloomberg World Bond Indexes. German securities returned 0.2 percent while Japanese debt was little changed.

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