UK Pound Climbs Against Euro as House Data Shows Improvement Print E-mail

TEP – 21 December 2009

The pound posted its biggest gain against the euro since October as home-buyer data indicated the UK may be poised to exit its longest recession on record, spurring demand for British assets.

The pound two days ago reached its highest level in a month ago against the 16-nation currency. British house prices advanced to a three-year high in November, the Royal Institution of Chartered Surveyors said Dec. 15. The Bank of England said Dec.18 that home-loan approvals climbed to 63,000 in November, the highest since the series began in December 2008, and up from 60,500 in October.

Sterling appreciated 1.1 percent in the week to trade at 88.87 pence per euro as of 4:50 p.m. in London. It fell 1.1 percent against the dollar to US$1.6076. The British currency has risen 7.6 percent against the euro this year and 10 percent against the dollar

“There is a good correlation between sterling and the strength of the UK housing market, and the pound is benefiting from some foreign buying,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “We are seeing some interest from overseas investors looking at increasing their UK assets.”

Evidence is accumulating that the economy may be strengthening. The British government had a 20.3 billion-pound (US$33 billion) budget deficit in November, the Office for National Statistics said yesterday in London. The median forecast in a Bloomberg survey of 14 economists was 23 billion pounds. The report also showed the first annual increase in tax receipts since September 2008.

Smaller Contraction

Sterling may appreciate next week on speculation the UK economy contracted in the third quarter less than previously estimated. The statistics office will say on Dec. 22 the economy shrank 0.1 percent, compared with the previous calculation of 0.3 percent, according to a Bloomberg survey.

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