Pound Rises Third Day as Carney Moves to Counter Housing Bubble
The pound rose for a third day versus the dollar as Bank of England Governor Mark Carney said the central bank will end incentives for mortgage lending to head off threats to financial stability from the housing market.
Sterling climbed to the strongest since January against the greenback before reports tomorrow that economists said will show consumer confidence improved this month and mortgage approvals rose in October. Carney said allowances under the central bank’s Funding for Lending Scheme will only apply to business lending from 2014 and no longer be available for home loans. U.K. government bonds rose after the Debt Management Office sold 2.5 billion pounds ($4.09 billion) of 30-year debt.
“Sterling reacted positively to what Carney said because the perception is that the Bank of England is using macro-prudential measures to head off risk to market stability that could come from the housing market,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Some see that as hawkish. We have a different view, but at this point, the market seems to be taking this as good news for the pound.”
The pound advanced 0.4 percent to $1.6344 at 4:39 p.m. London time after climbing to $1.6358, the highest since Jan. 2. The U.K. currency appreciated 0.2 percent to 83.18 pence per euro after advancing to 83.13 pence, the strongest since Nov. 7.
The central bank said its twice-a-year Financial Stability Report that regulators will also end a measure that allowed banks to not hold capital against mortgages granted under the Funding for Lending Scheme.
The changes “refocus the FLS where it is most needed,” Carney said in a statement. They will “underpin the supply of credit to small business without providing further broad support to household lending that is no longer needed.”
An index of U.K. consumer confidence climbed to minus 10 from minus 11 in October, according to a Bloomberg News survey of economists before GfK NOP Ltd. releases the figures tomorrow. A Bank of England report will show mortgage approvals increased to 68,500 in October from 66,700 the previous month, a separate survey showed.
“We’ve seen mixed U.K. data but overall it’s fair to say the U.K. economy is performing well,” said Roberto Mialich, a senior currency strategist at UniCredit Bank AG in Milan. “The pound drew strength from that and the fact that the dollar is broadly weaker ahead of a holiday.”
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 yesterday. U.S. financial markets are shut today for Thanksgiving.
The pound has strengthened 3.5 percent in the past month, the best performer of 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 0.6 percent and the dollar gained 2.1 percent.
Greater readiness by the central bank to use various tools to tighten monetary policy may make an early rate increase less likely, Goldman Sachs Group Inc. economists Kevin Daly and Sebastian Graves wrote today in a note to clients.
The 10-year gilt yield fell three basis points, or 0.03 percentage point, to 2.74 percent after rising as much as two basis points. The 2.25 percent bond due September 2023 gained 0.25, or 2.50 pounds per 1,000-pound face amount, to 95.835.
The government sold bonds due in January 2044 at an average yield of 3.609 percent, compared with 3.743 percent at a previous auction on Sept. 10. Investors bid for 1.67 times the amount of debt allotted, up from 1.46 times in September.
Gilts handed investors a loss of 3.2 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities fell 1.2 percent and U.S. Treasuries declined 2.3 percent.
To contact the reporter on this story: Anchalee Worrachate in London at firstname.lastname@example.org