Pound Strengthens After House Prices Increase for a Third Month

By Anna Rascouet

July 30 (Bloomberg) -- The pound snapped a two-day decline against the dollar after a report showed British house prices climbed in July for a third month.

The U.K. currency also strengthened for a fourth day versus the euro as mortgage lender Nationwide Building Society said the average cost of a home rose 1.3 percent, beating the 0.2 percent median forecast of 14 economists surveyed by Bloomberg. The FTSE 100 Index of stocks advanced for a second day amid a revival in risk appetite as BT Group Plc earnings beat analysts’ estimates.

“It’s the housing angle,” said Daragh Maher, deputy head of global foreign-exchange strategy at Calyon, the investment- banking arm of Credit Agricole SA. “There is underlying demand for sterling, which means that when you get a good number, the market is pretty quick to come in and start buying afresh.”

The pound appreciated 0.9 percent to $1.6521 as of 10:08 a.m. in London, the biggest gain since July 20. It advanced 0.7 percent to 85.20 pence per euro. Sterling rose against all but one of its 16 most-traded counterparts.

The pound is 0.3 percent higher against the U.S. currency this month, on course for its fifth consecutive monthly gain. It’s little changed versus the euro, after rising the three previous months.

Former Bank of England policy maker Stephen Nickell said in a statement today that Britain needs to build more houses than he estimated last year because the recession hurt construction. At least 237,800 extra homes are required each year until 2031, the National Housing and Planning Advice Unit, of which Nickell is chairman, said in a report.

Gilt Returns

Construction slumped last year as the U.K. slid into the worst recession in at least three decades. The pound tumbled 26 percent against the dollar in 2008 and sank 23 percent versus the euro.

The yield on the 10-year gilt was little changed at 3.97 percent. The two-year note yield fell 2 basis points to 1.33 percent.

Gilts lost investors 1.9 percent this month, according to Merrill Lynch & Co.’s U.K. Gilts Index. German debt returned 0.3 percent, while Treasuries lost 0.4 percent, Merrill indexes showed.

U.K. government bonds may keep falling, with the yield on the 10-year gilt climbing to 4.10 percent, a team of technical strategists at Barclays Capital, led by Jordan Kotick in New York, wrote yesterday in a report.

To contact the reporter on this story: Anna Rascouet in London arascouet@bloomberg.net