Pound Climbs to Highest Since 2011 Versus Dollar on Growth Signs

The pound rose to the strongest since August 2011 against the dollar as reports showing U.K. mortgage approvals and house prices both increased added to signs Britain’s recovery is gathering momentum.

Sterling climbed to a three-week high versus the euro after Bank of England Governor Mark Carney said yesterday the central bank will end incentives for mortgage lending and data two days ago confirmed economic growth quickened last quarter. U.K. government bonds extended a monthly decline as the growth signs damped demand for safer assets and amid speculation a U.S. job report next week will back the case for the Federal Reserve to slow debt purchases.

“The U.K. has reasonably decent growth, certainly better growth than its peers in the euro zone and the U.S., so in that context things are looking a little bit better for the pound for sure,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “The pound is going to trade stronger into year-end.”

The pound gained 0.2 percent to $1.6376 at 4:48 p.m. London time after climbing to $1.6384, the highest level since Aug. 30, 2011. The currency has gained 2.1 percent this month. Sterling appreciated 0.1 percent to 83.08 pence per euro after reaching 83.06 pence, the strongest since Nov. 7.

U.K. lenders granted 67,701 mortgages in October, the most since February 2008, and up from 66,891 in September, the Bank of England said. British house prices climbed at an annual rate of 6.5 percent in November compared with 5.6 percent the previous month, according to Nationwide Building Society.

End Incentives

Officials will end incentives for mortgage lending to head off a potential housing bubble as the recovery gathers pace, Carney said yesterday. The economy expanded 0.8 percent this quarter, the fastest since June 2010, the Office for National Statistics said Nov. 27.

“Sterling is one of the currencies that can perform relatively well against a generally weak dollar and also in the European context if you look at the short-term data,” said Paul Robson, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. There may be some “day to day volatility but ultimately we think sterling continues to do well for the next couple of months at least,” he said.

Sterling has gained 7.7 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 4.3 percent, while the dollar weakened 1.4 percent.

Gilts declined with U.S. Treasuries amid speculation an American payroll report next week will be strong enough to convince Fed policy makers to start reducing monthly bond purchases as soon as December.

‘Coming Months’

Fed officials said they may taper their $85 billion in stimulus “in coming months” as the economy improves, minutes of their October meeting showed. U.S. employers added 183,000 jobs this month and the jobless rate fell to 7.2 percent, according to Bloomberg surveys before the data is released Dec. 6.

The benchmark 10-year gilt yield rose three basis points, or 0.03 percentage point, to 2.77 percent, extending this month’s increase to 15 basis points. The 2.25 percent bond due in September 2023 fell 0.25, or 2.50 pounds per 1,000-pound face amount, to 95.59.

U.K. government bonds handed investors a loss of 3 percent this year through yesterday, according to Bloomberg World Bond Indexes. German securities fell 1 percent and U.S. Treasuries declined 2.3 percent.

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