BLBG: Pound Rises for Second Day Against Dollar as House Prices Jump
By Keith Jenkins
March 12 (Bloomberg) -- The pound climbed for a second day against the dollar on speculation this year’s drop was excessive as a report showed house prices rose at the fastest pace in seven years, mitigating concern about the economy.
Sterling strengthened versus 13 of its 16 most-traded counterparts. Research group Acadametrics Ltd. said the average cost of a home in England and Wales climbed 1.9 percent in February from January, the steepest increase since 2002. The pound is still 6.2 percent lower against the dollar in 2010 on concern this year’s election may produce the first U.K. minority government since 1974, constraining efforts to cut the deficit.
“There are huge short positions in sterling” given the political uncertainty, said Stuart Bennett, senior foreign- exchange strategist at Credit Agricole Corporate and Investment Bank in London. “Previous dollar strength has lacked momentum. This may have encouraged some short-covering” after the pound didn’t stay below $1.50 earlier this week, he said.
The pound gained 0.5 percent to $1.5137 as of 11:03 a.m. in London. It was little changed at 90.84 pence per euro, from 90.82 pence yesterday.
Sterling is the worst performer this year among the dollar’s 16 most-traded counterparts, and fell as far as $1.4784 on March 1, the lowest level since May.
‘Corrective Rebound’
“Sterling could undergo a little bit of a corrective rebound toward the $1.5195 area,” said Ian Stannard, a foreign- exchange strategist at BNP Paribas SA in London. He said his longer-term outlook for the pound is “still very bearish,” predicting the currency will trade near $1.30 by year-end.
Prime Minister Gordon Brown said on March 10 that this year’s budget will be delivered March 24. He called the U.K.’s economic recovery still “fragile” and in its early stages.
Gilts rose, pushing the 10-year yield down 2 basis points to 4.13 percent. The 3.75 percent security due September 2019 gained 0.13, or 1.3 pounds per 1,000-pound ($1,515) face amount, to 97.06. The two-year yield declined 4 basis points to 1.22 percent.
The Debt Management Office, which oversees bond auctions on behalf of the Treasury, plans to sell 3.25 billion pounds of a 4.75 percent gilt due March 2020 on March 18. The auction has been brought forward from March 24 to avoid a clash with the budget announcement. The debt office will auction the 6 percent security due 2028 in a so-called mini-tender next week.
To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net
