Pound Rises Against Dollar as Report Shows Insolvencies Declined

By Emma Charlton - Oct 22, 2012 11:31 PM GMT+0800

The pound rose for the first time in three days against the dollar after an industry report showed the number of U.K. business insolvencies slid in September, boosting optimism the economic recovery is strengthening.
Government bonds fell, pushing 10-year yields toward the highest in a month. The U.K. exited a recession in the third quarter, with gross domestic product increasing 0.6 percent from the previous three months, data due for release on Oct. 25 will show, according to the median forecast of economists in a Bloomberg News survey. Retail sales rose more than analysts estimated in September, a report last week showed.

“The recent data have been relatively supportive for the pound, showing there is a bottoming out of the economic cycle,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “GDP is the release this week that has the potential to move the market because it will spur speculation about what the Bank of England might do.”
The pound appreciated 0.1 percent to $1.6027 at 4:25 p.m. London time, after declining 0.4 percent last week. Sterling slipped 0.2 percent to 81.49 pence per euro. It touched 81.65 pence, the weakest level since June 11.

Insolvencies fell 3.1 percent from a year earlier to 1,679 companies, affecting 0.08 percent of all businesses, data from Dublin-based Experian Plc (EXPN) showed. Bankruptcies at U.K. companies with 26 to 50 employees fell 16 percent to 92 firms.
The pound will probably drop to $1.57 within a year, Leuchtmann predicted.

Gilts Slide

Britain’s currency slid against the euro and the dollar before Bank of England policy makers meet on Nov. 8. Minutes released last week of their October gathering showed officials were split on the need for more stimulus to boost the U.K. economy even as they voted 9-0 to keep the bond-purchase target at 375 billion.
Sterling slid 1 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro gained 4.2 percent and the dollar dropped 3.7 percent.

GDP shrank 0.4 percent in the second quarter. It will decrease 0.3 percent over the year, according to a separate Bloomberg survey, the first annual contraction since 2009.
The 10-year gilt yield rose two basis points, or 0.02 percentage point, to 1.90 percent after climbing to 1.96 percent on Oct. 18, the highest since Sept. 17.
Gilts have handed investors a return of 2 percent this year through Oct. 19, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 2.5 percent, while Treasuries earned 1.7 percent.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net