Pound Rises Versus Dollar After Production Improves; Gilts Fall

The pound strengthened toward a six-week high against the dollar after U.K. industrial production increased in February more than economists forecast, boosting speculation the nation will avoid a triple-dip recession.

Sterling gained for the fourth time in five days versus the greenback after gauges of manufacturing and retail sales also improved. The pound has climbed 1.7 percent in the past month, trimming this year’s decline to 4.5 percent, the second-worst performer after the yen, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. U.K. government bonds fell after an auction of 10-year securities attracted the lowest demand since June 2012.

“The production figures seem to have been taken very well,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “Now that sterling has firmly handed its crown of whipping boy over to the yen, it’s good to see it get a bit of a boost from good figures. We think that triple-dip recession will be avoided.”

The pound rose 0.5 percent to $1.5324 at 4:43 p.m. London time after rising to $1.5363 on April 5, the strongest since Feb. 20. Sterling fell 0.2 percent to 85.45 pence per euro after depreciating to 85.60 pence, the weakest since March 25.

U.K. industrial output expanded 1 percent in February, after dropping 1.3 percent the previous month, the Office for National Statistics said in London. A Bloomberg News survey of economists predicted an increase of 0.4 percent.

A similar report for the manufacturing industry showed an increase of 0.8 percent, while the British Retail Consortium said its measure of retail sales rose 1.9 percent in March from a year earlier.

Gilts Decline

Gilts fell for a second day as signs the economy is improving damped demand for safer assets.

The 10-year yield climbed four basis points, or 0.04 percentage point, to 1.74 percent after rising seven basis points yesterday. The 1.75 percent bond due September 2022 fell 0.375, or 3.75 pounds per 1,000-pound face amount, to 100.08.

The Debt Management Office sold 3.5 billion pounds of benchmark 10-year securities at a yield of 1.734 percent, down from 2.147 percent at the previous offering on Feb. 21. That compares with a record-low auction yield of 1.719 percent set on July 12. The so-called bid-to-cover ratio dropped to 1.68 from 2.25 in February.

‘Relative Selloff’

“The relative selloff seen in 10-year gilts in the past couple of sessions has been supportive at today’s auction,” Annalisa Piazza, a fixed-income analyst at Newedge Group in London, wrote in note to clients.

Britain’s economy probably expanded in the first quarter and avoided a triple-dip recession, according to an estimate from the National Institute of Economic and Social Research.

Gross domestic product rose 0.1 percent, the same pace as in the three months through February, the institute, whose clients include the Bank of England, said in a statement today.

Gilts returned 1.9 percent this year through yesterday according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 1 percent and Treasuries rose 0.6 percent.

Before it's here, it's on the Bloomberg Terminal.