The pound strengthened versus the dollar for the first time in eight days and U.K. government bonds fell after a report showed mortgage approvals jumped the most in six years in April. Sterling climbed from a four-week low as the Bank of England said approvals rose to 68,076, the highest level since February last year, from an upwardly revised 61,945 in March and compared with the 63,500 estimated in a Bloomberg economist survey. A report on construction also beat forecasts in a sign of confidence in Britain’s economy. “Data today suggests that the U.K. economy is returning to stronger growth,” said Lee Hardman, a London-based strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “That improving cyclical momentum has been favorable for the pound.” The pound gained 0.7 percent to $1.5314 as of 4:24 p.m. London time and weakened 1 percent to 72.58 pence per euro, its fifth day of losses versus Europe’s single currency. Ten-year gilts tumbled after the U.K. Debt Management Office sold 3.25 billion pounds of securities due in September 2025. Yields rose 11 basis points, or 0.11 percentage point, to 1.95 percent, the highest since May 22. The 5 percent bond due in March 2025 fell 1.11, or 11.1 pounds per 1,000-pound face amount, to 126.93.
The euro surged against the dollar yesterday posting its largest one-day rally in nearly three months, as ambiguities related to the Greek debt crisis and poor U.S. economic data remained in focus. EUR/USD soared more than 2.15% to an intraday high of 1.1192 before falling slightly back to 1.1153 in U.S. afternoon trading. Still, the pair finished with its sharpest daily gain since Mar. 18 and closed above 1.10 for the first time in eight sessions. EUR/USD likely gained support at 1.1001 the low from May 22 and was met with resistance at 1.1328, the high from May 19. In Berlin, high-level talks between top monetary policymakers and leaders of Germany and France on Monday evening dragged past Midnight, as the officials worked to craft a strategy on how to approach what could be the final round of talks with Greece. European Central Bank president Mario Draghi, International Monetary Fund head Christine Lagarde, Germany chancellor Angela Merkel, France president Francois Hollande and European Commission president Jean-Claude Juncker were among the officials present at the meeting. The meetings transpired days before a Greek deadline to meet a €304 million obligation to the IMF on Friday. In total, Greece owes more than €1.1 billion to the IMF in four separate payments by the end of this month. The leaders “agreed that work must now be continued with greater intensity,” according to a statement issued by Merkel’s office. The officials “have been in closest contact in recent days,” the statement continued, “and want to remain so in the coming days, both among themselves and naturally also with the Greek government.” Yields on Greek 10-Year bonds plunged nine basis points to 10.96%, underscoring optimism that a deal can be reached. By comparison, yields on the Greek 10-year bonds have soared more than 510 basis points this year. Elsewhere, euro zone inflation ticked up 0.3% in May increasing from zero a month earlier and above expectations for a 0.2% increase. The rise may provide validation for Draghi that the ECB’s comprehensive €60 billion a month quantitative easing program is working. Yields on other sovereign debt throughout Europe shot up, as a result. Yields on Germany 10-Year bunds increased 17 basis points to 0.71%, while yields on the Spanish and the Italian 10-Year bonds each gained at least 12 basis points to move above 2%.
The dollar remained broadly lower against the other major currencies today after weak U.S. factory data dampened expectations for higher interest rates, while the euro was buoyed up by hopes for a breakthrough on a debt deal for Greece. EUR/USD was at 1.1145, holding just below the one-and-a-half week highs of 1.1193 hit on Tuesday. The pair ended that session up 2.08%. The dollar weakened across the board after data on Tuesday showing that U.S. factory orders unexpectedly fell in April sparked fears over the outlook for second quarter growth. The Commerce Department said factory orders fell 0.4% in April, confounding expectations for a 0.2% increase. The unexpectedly weak data indicated that growth could struggle to pick up in the current quarter after a weak first quarter. Demand for the single currency continued to be underpinned by hopes that Greece will soon reach an agreement with its international lenders on a cash-for-reforms deal.