BLBG: Pound Climbs Against Dollar as Stocks Gain on Signs of Recovery
By Beth Mellor and Lukanyo Mnyanda
Nov. 23 (Bloomberg) -- The pound gained for the first time in five days against the dollar as commodity companies led shares higher amid growing confidence the global economic recovery is gathering pace.
Britain’s currency also snapped three days of losses against the Japanese yen as the FTSE 100 Index added as much as 2.4 percent, the most since Oct. 6. Rio Tinto Group, the world’s third-biggest mining company, and Lonmin Plc jumped more than 5 percent as metal prices climbed. A report in two days’ time may show the U.K. economy contracted in the third quarter less than previously estimated, according to a Bloomberg survey.
“The correlation between sterling and stocks is still intact -- the pound tends to trade well when stocks are higher,” said Neil Jones, head of European hedge-fund sales in London at Mizuho Corporate Bank. “There is sentiment that the GDP revisions could surprise to the upside and sterling may trade well ahead of that number.”
The pound gained 0.7 percent to $1.6614 as of 4 p.m. in London, the first gain since Nov. 16. The currency advanced 0.8 percent to 147.81 yen. The pound was little changed at 90.16 pence per euro, after earlier falling as much as 0.4 percent.
U.K. gross domestic product dropped 0.3 percent in the third quarter, according to the median forecast of 28 economists surveyed by Bloomberg. The Office for National Statistics said in a provisional report on Oct. 23 that the economy shrank by 0.4 percent.
‘Modest’ Recovery
Bank of England policy maker Andrew Sentance said a “modest” economic recovery is under way, according to the Western Morning News, citing an interview.
“There has been a turnaround on the demand side although the recovery remains quite fragile -- that’s an inevitable feature as it’s at an early stage,” Sentance said, according to the interview published on Nov. 21. “A modest recovery is under way.”
The pound has risen 14 percent this year against the dollar, even as the Bank of England cut benchmark interest rates to a record low of 0.5 percent and started to buy bonds in an attempt to stimulate the economy.
Sterling tumbled 1.9 percent against the dollar the day the GDP data was released last month.
The U.K currency last week posted its biggest weekly decline against the dollar since September amid concern that the country’s worst budget deficit since records began will hinder recovery from recession. Britain had an 11.4 billion-pound ($19 billion) budget deficit in October, data from the Office for National Statistics on Nov. 19 showed.
Gilts Decline
U.K. 10-year government bonds fell, pushing the yield up 3 basis points to 3.67 percent. The yield on the two-year gilt fell 1 basis point to 1.22 percent.
The U.K.’s Debt Management Office will sell 3.75 billion pounds of 4 percent bonds maturing in March 2022 tomorrow.
“The market has done its selling today to position itself ahead of tomorrow’s auction,” said Peter Chatwell, a London- based fixed-income strategist at Calyon, the investment-banking arm of Credit Agricole SA. “This is a convenient way of easing up your long-end book so you can take up those gilts tomorrow.”
-- With assistance from Scott Hamilton in London. Editors: David Clarke, Peter Branton.
To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Beth Mellor in London at bmellor@bloomberg.net
