Pound Set for Record Monthly Gain Versus Euro as Mortgages Rise

By Gavin Finch

Jan. 30 (Bloomberg) -- The pound climbed against the euro, set for a record monthly advance, after a government report showed U.K. mortgage approvals unexpectedly rose in December.

The pound advanced to the highest level in almost two weeks versus the single European currency as the nation’s FTSE 350 Banks Index gained 2.5 percent. Lenders granted 31,000 loans for house purchases, compared with 27,000 in November, the Bank of England said today. Economists predicted a drop to 26,000, according to a Bloomberg survey.

“The pound has been doing pretty well lately,” said Paul Robson, a currency strategist in London at Royal Bank of Scotland Group Plc. “The pound was looking very oversold on concern about the financial sector, and got a boost from better- performing bank stocks this week. The outlook for the pound remains challenging, however.”

The pound strengthened to 89.80 pence by 11:39 a.m. in London, the highest level since Jan. 19. It advanced 6.6 percent this month. Against the dollar, the U.K. currency advanced to $1.4308, paring its drop in January to 2 percent. That’s a seventh monthly decline, the longest run of losses since at least 1984.

The value of mortgage approvals fell to 8.7 billion pounds ($12.4 billion) in December, the lowest level since 1999, the Bank of England said today. Net lending secured on dwellings still doubled from November to 1.9 billion pounds.

Consumer Confidence

The pound tumbled against the dollar earlier after a report showed U.K. consumer confidence dropped to near a record low in January. GfK NOP said its index of sentiment fell to minus 37. It was minus 39 in July, the lowest level since the data began in 1974.

“The pound is clearly going to move lower versus the dollar and the euro,” said Michael Klawitter, a Frankfurt-based strategist at Dresdner Kleinwort who forecast the currency will fall to $1.20 and test parity against the euro within the next six months. “Sterling risks remain substantial. The U.K. economy is facing a complex set of downside” pressures.

The International Monetary Fund said Jan. 28 Britain’s economy will contract 2.8 percent this year, more than any other Group of Seven industrialized nation. Global growth will almost halt as more than $2 trillion of bad assets in the U.S. sinks economies worldwide, the IMF said.

Prime Minister Gordon Brown said this week in Parliament the U.K. is entering a “deep recession” and the government will act to soften the effect, suggesting he may be considering a further fiscal stimulus.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net