Pound Rises Versus Dollar as Stocks’ Rally Boosts Risk Appetite

By Lukanyo Mnyanda

Feb. 19 (Bloomberg) -- The pound rose by the most in almost a week against the dollar as a rally in European stock markets fueled demand for riskier assets.

Britain’s currency rose for a third day versus Japan’s yen after the MSCI World Index advanced for the first time in eight days. Gilts slumped as BNP Paribas SA, France’s largest bank, said it will be profitable this year and before a government sale of 3.25 billion pounds ($4.7 billion) of securities due 2012.

“We’re looking to the stock markets again and that’s supporting the pound,” said Harry Adams, a currency trader in London at Schneider Foreign Exchange, which counts companies and wealthy individuals among its clients. “The market’s also taking a bit of a breather.”

The pound strengthened 1 percent to $1.4360 by 10:40 a.m. in London, after dropping yesterday to $1.4094, the lowest level since Feb. 2. It slipped to 88.32 pence per euro, after earlier rising to the highest level since Feb. 10. The U.K.’s currency bought 134.36 yen, from 133.28.

The pound may trade between $1.4097 and $1.4605 today, Adams said. It may strengthen to $1.46 by the end of the third quarter, according to the median of 47 analysts’ predictions compiled by Bloomberg.

The U.K.’s benchmark FTSE 100 climbed 0.6 percent, snapping five days of losses, as a rebound in banks offset declines by property companies. The MSCI World Index rose 0.7 percent.

‘Cheap Assets’

Demand for British assets may rise as investors seek to take advantage of the pound’s 23 percent decline against the euro in 2008 and as they bet central bank and government efforts to revive the economy will work, said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank. The pound lost 26 percent versus the dollar last year.

“U.K. assets are looking cheap, and there is increased confidence in what the government is doing. They’re being seen as being pro-active and aggressive,” London-based Jones said. “The pound’s so oversold at current levels.”

U.K. government bonds declined, with the two-year yield rising 14 basis points to 1.62 percent. The 4.25 percent security maturing March 2011 fell 0.30, or 3 pounds per 1,000-pound face amount, to 105.28. The 10-year yield increased eight basis points to 3.47 percent.

To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net