(Bloomberg) -- The pound rose above $1.50 for the first time since January and traded at its highest level in five weeks against the euro after a report showed the slump in U.K. house prices eased last month.
The British currency also climbed versus the yen after the Royal Institution of Chartered Surveyors said the number of real estate agents and surveyors saying house prices fell exceeded those reporting gains by 73.1 percentage points, compared with 78.1 in February. Currency options suggested traders were the most optimistic in almost four years on the prospects for the pound against the euro.
“Overseas investors are looking to dip their toes back into U.K. assets whether by acquisitions or commercial and residential property assets,” said Neil Jones, European head of hedge-fund sales in London at Mizuho Corporate Bank Ltd. “That’s creating demand for sterling.”
The pound strengthened 0.4 percent to $1.4952 as of 12:52 p.m. in London, its third straight advance versus the dollar, and traded as high as $1.5036. It gained 0.8 percent to 88.27 pence per euro and 0.8 percent to 148.63 yen.
While Prime Minister Gordon Brown’s government is battling Britain’s worst recession since at least 1980, some reports are indicating a recovery in Europe’s second-largest economy. Mortgage approvals increased in February, the Bank of England said on March 30. Nationwide Building Society said April 2 house prices rose last month for the first time since October 2007.
“Data from the U.K. are showing the first signs of some stabilization of the economic outlook,” said Ian Stannard, a currency strategist in London at BNP Paribas SA, France’s largest bank. “In the eurozone there are no such signs, and we are going to see sterling continuing to outperform,” gaining to 86.40 pence per euro in the “coming weeks,” he said.
Risk-Reversal Rate
Traders are paying a 0.25 percentage-point premium for one- week call options on the pound relative to puts, according to data compiled by Bloomberg. Call options grant the right to buy an asset while put options give the right to sell. The difference, or risk-reversal rate, favored euro puts from March 9, 2007, through April 3 this year.
“There are more and more people thinking there will be prolonged declines in the euro, especially against the pound,” said Ashraf Laidi, chief market strategist in London at CMC Markets.
Index-Linked Gilt Sale
The prospect of an economic recovery after the Bank of England lowered the nation’s benchmark interest rate to an all- time low of 0.5 percent last month is stoking expectations that inflation will accelerate.
Investor bids at a sale today of 500 million pounds of index-linked bonds maturing in 2037 outweighed the amount offered by 1.62 times, the Debt Management Office said. The average at the past three sales of the securities is 1.29 times.
“Index-linked sales have been going pretty well recently,” said John Wraith, head of sterling interest-rate strategy in London at RBC Capital Markets. “Some of that probably reflects the view that however bad things are at the moment, however soft inflationary pressures are, the fact that the BOE is printing money may mean that in due course that there’s more of an issue with inflation.”
The Bank of England plans to buy 3.5 billion pounds of gilts today, taking purchases under its quantitative easing program to 31.5 billion pounds.
The yield on the 10-year gilt fell two basis points to 3.19 percent. The 4.5 percent security due March 2019 rose 0.20, or 2 pounds per 1,000-pound face amount, to 111.07. The two-year note yield slipped one basis point to 1.28 percent. Bond yields move inversely to prices.
To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Anna Rascouet in London at arascouet@bloomberg.net
