British Pound Climbs Against Dollar, Euro as Equities Advance

By Anchalee Worrachate

Nov. 27 (Bloomberg) -- The British pound rose against the dollar and strengthened for a third day versus the euro as rising stocks rekindled risk appetite, spurring demand for the U.K. currency.

The pound advanced against 14 of 16 major currencies monitored by Bloomberg as the FTSE 100 Index, an equity benchmark, gained 0.8 percent and The MSCI World Index of stocks climbed for a fourth day. U.K. house prices declined this month by less than economists predicted, a Nationwide Building Society report showed. U.S. markets are closed today for the Thanksgiving holiday.

“Stocks are rising and, on that basis, it’s a supportive environment for sterling,” said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp. “Moves may also be exaggerated by illiquidity in the market as we have a holiday in the U.S. My longer-term view about the pound remains bearish because of the economic fundamentals.”

The U.K. currency was at $1.5415 as of 9:25 a.m. in London, from $1.5326 yesterday. Against the euro, the pound strengthened to 83.78 pence, from 84.04 pence.

The pound slid 22 percent against the dollar this year and 12 percent versus the euro as slumping house prices sent Britain to the brink of a recession.

The average cost of a home slid 0.4 percent from October and dropped 13.9 percent from a year earlier, the Swindon, England-based mortgage lender said today. Economists surveyed by Bloomberg had expected drops of 1.7 percent and 15.1 percent, respectively.

Gilts Fall

Two-year government bonds fell for a fifth day as gains in stocks sapped demand for safest assets. Bond prices also slid before the Debt Management Office sells 3.75 billion pounds of debt maturing in 2012 today.

The decline pushed the two-year yield up four basis points to 2.25 percent. The price of the 4.75 percent gilt due June 2010 fell 0.07, or 70 pence per 1,000-pound ($1,542) face amount, to 103.72.

The yield on the 10-year note was little changed at 3.78 percent. Yields move inversely to bond prices.

Government bonds advanced yesterday, sending the yield on the 10-year gilt to the lowest level in almost two decades, after a government report showed consumer spending dropped the most since 1995 and investment tumbled.

A slump in global growth and almost $1 trillion of losses and writedowns at financial institutions fueled demand for the relative safety of government fixed-income this year. The Organization for Economic Cooperation and Development said Nov. 25 the world’s largest economies need further interest-rate reductions and tax cuts.

Gilts underperformed their European counterparts this quarter, handing investors a 5.14 percent return since the end of September, compared with a gain of 5.69 percent on German bonds.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net