U.K. Pound Rises to Two-Week High Against Dollar on Bank Plans

By Lukanyo Mnyanda

Feb. 23 (Bloomberg) -- The pound rose to the highest level in almost two weeks against the dollar on speculation banks are stepping up efforts to shore up their finances.

The pound also rose against the yen and the euro after a person familiar with the matter said Royal Bank of Scotland Group Plc plans to cut costs by more than 1 billion pounds ($1.44 billion) and the Wall Street Journal reported the U.S. may raise its holding in Citigroup Inc. U.K. government bonds fell as the FTSE Index jumped 1.1 percent.

“Equity sentiment has been buoyant and that’s providing some support for the pound,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International. “There’s still a number of questions marks about the banking sector and sterling’s resilience may be tested.”

The pound rose to $1.4653 as of 10:27 a.m. in London, its strongest level since Feb. 10, from $1.4433 last week. It advanced to 137.27 yen, from 134.71, and to 88.30 pence per euro, from 88.91.

The pound may trade between $1.44 and $1.46 today, Stretch said. The median prediction of 45 strategists and analysts’ forecasts compiled by Bloomberg is for the pound to trade at $1.50 by year-end.

Royal Bank of Scotland, Britain’s largest state-controlled lender, plans to split itself into two units and will also scale back investment banking, a person familiar with the situation said.

Equity Gains

Futures on the Standard & Poor’ 500 Index expiring in March rose 1.9 percent. The FTSE 350 Banks Index jumped 4 percent.

Gains by the currency may be limited before a report this week that will show the economy shrank in the fourth quarter, making it more likely the Bank of England will keep cutting interest rates, Stretch said.

U.K. government bonds fell, pushing the yield on the 10-year gilt up six basis points to 3.47 percent. The 4.25 percent security maturing March 2019 fell 0.56, or 5.60 pounds per 1,000- pound face amount, to 108.68. The two-year yield gained seven basis points to 1.54 percent. Yields move inversely to bond prices.

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