U.K. Pound Climbs Versus Dollar as Equities Rise on Greek Rollover Plan

The pound rose against the dollar and the yen as stocks advanced after European Central Bank President Jean-Claude Trichet signaled his support for Greek government bond rollovers.

The U.K. currency gained versus the dollar for the third day in four. Data showed U.K. home prices rose 0.1 percent in May, following a 1.4 percent decline the previous month. Ten- year gilts fell as the U.K. Debt Management Office sold 1 billion pounds ($1.64 billion) of inflation-linked bonds due in March 2040. The FTSE 100 Index advanced 0.2 percent and futures on the Standard & Poor’s 500 Index increased 0.5 percent. The pound weakened for a sixth day against the euro.

“The market is taking its cue” from stock-market futures, said Steve Barrow, head of research for Group-of-10 currencies at Standard Bank Plc in London. “Sterling is looking a little bit firmer, but that data is still looking iffy.”

The pound strengthened 0.5 percent to $1.6430 as of 12:09 p.m. in London. It climbed 0.6 percent to 131.76 yen, and weakened 0.2 percent to 89.27 pence per euro.

Sterling touched its weakest level on record in Bloomberg Correlation-Weighted Currency Indexes, a measure of 10 developed-market currencies, as Prime Minister David Cameron’s coalition government pushes through the biggest spending cuts since World War II.

The Bank of England has kept its main interest rate unchanged at a record-low 0.5 percent since March 2009 and bought 200 billion pounds of bonds under a so-called quantitative easing program that ended in February 2010. Policy makers will announce their latest decision on June 9.

Gilt Yields, Offering

The 10-year gilt yield rose two basis points to 3.29 percent. It reached 3.22 percent on June 3, the lowest since November 30. The 3.75 percent security maturing in September 2020 fell 0.17, or 1.70 pounds per 1,000-pound face amount, to 103.635. Two-year yields were little changed at 0.87 percent.

Investors bid for 2.3 times the amount of index-linked gilts on sale, the DMO said. The bonds were allotted at a real yield of 0.587 percent.

Gilts have handed investors 2.5 percent this year after returning 7.6 percent last year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

They advanced amid optimism the government would control Britain’s record deficit after the coalition between Cameron’s Conservatives and Nick Clegg’s Liberal Democrats replaced the Labour party after last year’s election.

Gilt futures may rise as high as 121.91 should the price of the September 2011 contract breach a so-called resistance level at 121.03, UBS AG said, citing trading patterns.

“Gilts are bullish while they trade above the 119.87 mid- point,” Richard Adcock, head of fixed-income technical strategy at UBS in London, wrote in an e-mailed report today.

The long gilt future contract expiring in September slipped 0.1 percent to 120.39. It reached 121.03 on June 3, according to data compiled by Bloomberg.

“A break above Friday’s high at 121.03 will be the next bullish trigger, opening the door to our objective marked by the October extreme at 121.91,” Adcock wrote. www.bloomberg.com

Euro Falls Toward 6-Week Low Before Ministers Meet on Greece

The euro fell against the dollar and yen for a second day on concern European finance ministers may fail to quell speculation about Greece’s debt restructuring.

The 17-nation currency dropped against 14 of its 16 major counterparts before the ministers meet today to discuss further support for Greece. Any extension of the maturities of Greek bonds would have to involve private investors, German Finance Minister Wolfgang Schaeuble said in an interview with ARD television in Berlin yesterday. The yen gained as a report showed Japan’s machine orders unexpectedly rose in March, following the nation’s worst earthquake.

“The market is closely watching what will come out from this week’s meetings,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign- exchange margin-trading services. “Any preemptive move is unlikely, and concern about Greece’s restructuring may spread to countries like Ireland. That may continue to give selling pressure for the euro.”

The euro dropped to $1.4082 as of 9:02 a.m. in Tokyo from $1.4119 in New York on May 13. It earlier reached $1.4063, the lowest level since April 1. The shared currency fell to 113.68 yen from 114.06. It touched 113.42, the weakest level since March 18, when Group of Seven central banks sold yen in the currency markets to stem its surge after an earthquake and tsunami.

The yen was at 80.72 per dollar from 80.80.

Aid for Greece

European officials are working to prevent the region’s first default as Greek ministers plead for terms to be relaxed on 110 billion euros ($155 billion) of aid from the International Monetary Fund and European Union in a debt crisis that has also engulfed Ireland and Portugal.

IMF Managing Director Dominique Strauss-Kahn has been charged with attempted rape and a criminal sex act on a woman in a New York hotel, police said. Strauss-Kahn, a potential candidate for the French presidency, denies the charges.

The IMF will be represented at today’s euro-area finance ministers’ meeting by Deputy Managing Director Nemat Shafik, IMF spokesman Bill Murray said in an e-mailed statement.

“The euro is likely to react negatively as the IMF head’s arrest injects a degree of uncertainty at a critical moment in the eurozone sovereign debt crisis,” Gareth Berry, a foreign- exchange strategist at UBS AG in Singapore, wrote in a note to clients yesterday.

The euro has dropped 1.2 percent over the past month in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has gained 4.9 percent, while the dollar is up 1.5 percent.

Japan’s machine orders advanced 2.9 percent after dropping a revised 1.9 percent in February, the government reported today. The median estimate of economists in a Bloomberg News survey was for a 10 percent decline. www.bloomberg.com

Selling Dollar Versus Euro ‘Makes Sense’ on Fed, Aviva Investors Says

The dollar will fall further against the euro as the Federal Reserve keeps monetary policy loose, and the end of its bond-purchase program won’t be enough to lift the currency, according to Aviva Investors.

The dollar “probably has room” to decline to $1.60, a level that previously made European policy makers uncomfortable, said Pierre Lequeux, London-based head of currency management at Aviva Investors, which oversees about $370 billion. The euro is being supported by emerging economies that continue to diversify their assets away from the dollar, he said.

“Investors will look beyond the end of QEII in June,” Lequeux said in an interview at a Euromoney conference in London, referring to the second round of so-called quantitative easing. “It still makes sense to short the dollar against the euro. The U.S. economy seems to have fundamental flaws.”

The dollar has dropped 9.5 percent against the euro this year, making it the worst performer against the common currency after the South African rand, even as some nations in the euro region are grappling with the sovereign-debt debt crisis.

Fed ChairmanBen S. Bernanke, who has kept the target rate for overnight loans between banks in a record low range of zero to 0.25 percent since December 2008, said last week that there will be no change for an “extended period.” The Federal Open Market Committee meets every six to eight weeks.

“The job market remains sluggish and the domestic activity is still slow,” Lequeux said. “The U.S. has some fiscal adjustments to do and that will affect growth. It’s hard for me to be bullish on the dollar.”

‘Political Commitment’

The European Central Bank boosted its main refinancing rate on April 7 to 1.25 percent from 1 percent to tame inflation expectations, and ECB President Jean-Claude Trichet signalled more increases may be on the way.

“There is a strong political commitment for the euro,” said Lequeux. “And there’s also support from currency diversification. That’s probably why the euro hasn’t fallen out of bed, despite the sovereign-debt crisis.”

The dollar fell 0.2 percent to $1.4796 per euro as of 1:20 p.m. in London. It dropped 0.5 percent to 80.80 yen.

Aviva Investors is a unit of Aviva Plc (AV/), Britain’s second- biggest insurer by market value. www,bloomberg.com