U.K. Pound Heads for Weekly Drop as House-Price Inflation Cools
By Aaron Pan
June 1 (Bloomberg) -- The pound headed for a weekly drop against the euro on indications four interest-rate increases in the past year are starting to cool Britain's property market.
The U.K. currency also slid to near a week-low versus the dollar after reports this week showed the number of loans granted for house purchases fell in April and credit growth slowed. The pound gained versus the euro in May, snapping a three-month losing streak, amid data showing the economy maintained momentum in the first quarter even after three interest-rate increases since August by the Bank of England.
``The sharp rally in the pound'' last week ``would leave it vulnerable to any soft data,'' said Daragh Maher, currency strategist at Calyon in London. ``With the market fully priced for one hike, any signs of moderation will cause some wobbles.''
Against the euro, the pound traded at 67.94 pence as of 8:40 a.m. in London, from 67.77 pence a week ago. It was also at $1.9791 from $1.9836 on May 25.
U.K. government bonds are headed for their third consecutive weekly drop as reports showed rising confidence amongst Britain's consumers and higher retail prices.
The yield on the benchmark 10-year gilt gained 3 basis points in the week to 5.26 percent by 8:39 a.m. in London. The price of the 4 percent gilt due September 2016 has fallen 0.17, or 1.7 pounds per 1,000-pound ($1,978) face amount, to 90.87. Yields move inversely to prices.
The average cost of a home climbed 0.5 percent this month after a 0.9 percent gain in April, Nationwide Building Society, the country's third-largest mortgage lender said this week. Economists had forecast a 0.6 percent gain, according to the median of 19 responses in a Bloomberg survey.
Home Loans Slip
Lenders granted 107,000 loans for house purchases, down from a revised 112,000 in March, the lowest in a year, the Bank of England said in a separate report. Borrowing by consumers on credit cards, personal loans and overdrafts fell to 498 million pounds, the least since March 1997.
A report May 29 showed the number of loans granted for U.K. house purchases fell 14 percent in April from the month before. Lenders granted 64,815 mortgage loans, from 75,098 in March and 64,183 a year earlier, the British Bankers' Association said.
Declines for the pound were limited after a survey yesterday showed consumer confidence in Europe's second-largest economy rose in May to the highest in two years. An index of confidence advanced to minus 2 this month compared with minus 6 in April, according to the survey of 2,000 people by GfK NOP.
A separate report also showed an index of U.K. retail prices from the Confederation of British Industry rose to the highest in nine years.
BOE Rates
The BOE lifted its benchmark rate to a six-year high of 5.5 percent on May 10 to tame inflation. Price growth reached 3.1 percent in March, a decade-high, forcing Bank of England Governor Mervyn King to write an open letter explaining what the central bank would do to bring the figure back to the 2 percent target.
Interest-rate futures prices show traders are betting the BOE will keep lifting rates this year. The implied yield on the September interest-rate futures contract rose 15 basis points last month to 6.06 percent, while the December contract gained 14 basis points to 6.14 percent.
The contracts settle to the three-month London interbank offered rate for the pound, which has averaged 15 basis points more than the central bank's benchmark for the past decade.
By Aaron Pan
June 1 (Bloomberg) -- The pound headed for a weekly drop against the euro on indications four interest-rate increases in the past year are starting to cool Britain's property market.
The U.K. currency also slid to near a week-low versus the dollar after reports this week showed the number of loans granted for house purchases fell in April and credit growth slowed. The pound gained versus the euro in May, snapping a three-month losing streak, amid data showing the economy maintained momentum in the first quarter even after three interest-rate increases since August by the Bank of England.
``The sharp rally in the pound'' last week ``would leave it vulnerable to any soft data,'' said Daragh Maher, currency strategist at Calyon in London. ``With the market fully priced for one hike, any signs of moderation will cause some wobbles.''
Against the euro, the pound traded at 67.94 pence as of 8:40 a.m. in London, from 67.77 pence a week ago. It was also at $1.9791 from $1.9836 on May 25.
U.K. government bonds are headed for their third consecutive weekly drop as reports showed rising confidence amongst Britain's consumers and higher retail prices.
The yield on the benchmark 10-year gilt gained 3 basis points in the week to 5.26 percent by 8:39 a.m. in London. The price of the 4 percent gilt due September 2016 has fallen 0.17, or 1.7 pounds per 1,000-pound ($1,978) face amount, to 90.87. Yields move inversely to prices.
The average cost of a home climbed 0.5 percent this month after a 0.9 percent gain in April, Nationwide Building Society, the country's third-largest mortgage lender said this week. Economists had forecast a 0.6 percent gain, according to the median of 19 responses in a Bloomberg survey.
Home Loans Slip
Lenders granted 107,000 loans for house purchases, down from a revised 112,000 in March, the lowest in a year, the Bank of England said in a separate report. Borrowing by consumers on credit cards, personal loans and overdrafts fell to 498 million pounds, the least since March 1997.
A report May 29 showed the number of loans granted for U.K. house purchases fell 14 percent in April from the month before. Lenders granted 64,815 mortgage loans, from 75,098 in March and 64,183 a year earlier, the British Bankers' Association said.
Declines for the pound were limited after a survey yesterday showed consumer confidence in Europe's second-largest economy rose in May to the highest in two years. An index of confidence advanced to minus 2 this month compared with minus 6 in April, according to the survey of 2,000 people by GfK NOP.
A separate report also showed an index of U.K. retail prices from the Confederation of British Industry rose to the highest in nine years.
BOE Rates
The BOE lifted its benchmark rate to a six-year high of 5.5 percent on May 10 to tame inflation. Price growth reached 3.1 percent in March, a decade-high, forcing Bank of England Governor Mervyn King to write an open letter explaining what the central bank would do to bring the figure back to the 2 percent target.
Interest-rate futures prices show traders are betting the BOE will keep lifting rates this year. The implied yield on the September interest-rate futures contract rose 15 basis points last month to 6.06 percent, while the December contract gained 14 basis points to 6.14 percent.
The contracts settle to the three-month London interbank offered rate for the pound, which has averaged 15 basis points more than the central bank's benchmark for the past decade.
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