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Pounds Strengthens on UK Growth Outlook Optimism as Gilt Drops - (Bloomberg)

Posted by Chris Advincula on Sep 23, 2013 7:11:00 AM

The pound rose for the first time in three days versus the dollar before reports this week that analysts said will show economic growth quickened, house prices rose and consumer confidence improved.

Sterling strengthened to an eight-month high against the U.S. currency last week as the Federal Reserve maintained stimulus measures that have debased the dollar. The pound has appreciated at least 1 percent versus all 16 of its major counterparts in the past six months amid signs the economy is gaining momentum. U.K. gilts declined before the government sells inflation-linked bonds through banks this week.

“It’s a very quiet week in the U.K.,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “Dollar factors will continue to dominate. The data calendar is very light so we could see pound-dollar remain somewhat supported.”

The pound rose 0.2 percent to $1.6042 at 11:06 a.m. London time after weakening 0.9 percent during the previous two days. The U.K. currency climbed 0.3 percent to 84.25 pence per euro after appreciating to 83.53 pence on Sept. 18, the strongest level since Jan. 17.

U.K. gross domestic product expanded 0.7 percent in the second quarter, according to a Bloomberg News survey of economists before the data from the Office for National Statistics on Sept. 26. Industry reports the following day are forecast to show consumer confidence and house prices climbed this month.

Home Approvals

Homes approved for construction in the U.K. rose 49 percent in the second quarter as government assistance boosted mortgage lending and building permits became easier to get. Approvals climbed to 37,000 from the same period a year earlier, the Home Builders Federation said in a statement today.

Sterling has risen 5.6 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar weakened 0.3 percent, while the euro gained 4.2 percent.

The benchmark 10-year gilt yield rose four basis points, or 0.04 percentage point, to 2.96 percent after climbing to 3.05 percent on Sept. 11, the highest level since July 2011. The 2.25 percent bond maturing in September 2023 fell 0.36, or 3.60 pounds per 1,000-pound face amount, to 93.88. 

U.S. Spread

Investors are demanding the highest yield on 10-year gilts relative to Treasuries in seven months as they accumulate bets that the Bank of England will start raising interest rates before the Federal Reserve. U.K. bond yields rose last week after minutes published Sept. 18 showed policy makers agreed this month that the economy no longer needs more stimulus.

The rate on 10-year Treasuries is 2.75 percent. U.S. yields exceeded the rate on gilts as recently as Sept. 4.

The U.K. will sell inflation-linked securities due in March 2068 this week. The Debt Management Office has hired Barclays Plc, Deutsche Bank AG, HSBC Holdings Plc and Morgan Stanley to manage the deal.

U.K. government bonds lost 4.5 percent this year through Sept. 20, according to Bloomberg World Bond Indexes. German securities dropped 2.4 percent and Treasuries fell 3 percent. 



gbp.usd.9.23 resized 600 

Chart: WorldWideMarkets Flash Trader


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Source: Bloomberg


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