Pound Holds Near Highest Level This Year as Stocks, Oil Advance

By Gavin Finch

May 20 (Bloomberg) -- The pound traded near the highest level this year against the dollar as oil traded above $60 a barrel and U.S. stock-index futures gained on speculation the worst of the global recession is over.

The pound advanced earlier after an industry report showed U.K. manufacturers were the least pessimistic on the outlook for production in eight months in May. The MSCI World Index of stocks climbed for a third day after Bank of America Corp. raised about $13.5 billion in a stock sale, indicating the U.S. financial industry may be stabilizing.

“Sterling is benefiting from the return of risk appetite which has seen stocks outperform,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “A lot of bad news has already been priced into the pound, making it one of the most undervalued currencies.”

The pound advanced as much as 0.4 percent to $1.5536, the strongest since Dec. 18, and was at $1.5490 by 12:22 p.m. in London. It declined 0.1 percent to 88.15 pence per euro.

The pound pared gains and two-year gilts reversed declines after the minutes of the Bank of England’s last rate-setting meeting showed policy makers voted unanimously to extend their money-printing plan to 125 billion pounds ($193 billion). They discussed increasing the program to 150 billion pounds.

An index of expectations for U.K. output in the next quarter rose to minus 17 in May, the highest since September, from minus 32 in April, the Confederation of British Industry said today. An index of factories’ order books was at minus 56 after minus 57 in April.

Record Sale

The yield on the two-year gilt fell two basis points to 0.99 percent. Five-year gilt yields rose four basis points to 2.50 percent before a record 5 billion pound sale of the securities tomorrow. Bond yields move inversely to prices.

Tomorrow’s debt sale is part of a plan to auction 220 billion pounds of gilts this fiscal year, 50 percent more than last year, to help drag the economy out of the recession. The Debt Management Office didn’t find enough buyers at a sale of gilts on March 25, the first so-called failed auction since 2002.

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