The pound snapped a seven-day losing streak against the dollar on speculation rising stock markets will increase demand for the British currency.
The pound also gained versus the yen and Britain's government
bonds slid as stock-market gains sapped demand for the safest assets.
The FTSE 100 Index, a U.K. equity benchmark, climbed 1.5 percent and
the cost of protecting European company bonds from default fell,
credit-default swaps showed. The pound's relative strength index, a
chart used to indicate price direction, also signaled it was poised to
rebound.
``There's been a really strong correlation between currencies and
equities lately,'' said John Hydeskov, a senior analyst in Copenhagen
at Danske Bank A/S, Denmark's biggest bank. ``The pound has been hit
hard by this continued deleveraging. The gains in equities today are
quite strong, so risk sentiment keeps things in balance.''
The yen fell the most in two weeks against the euro and dropped for the
first time in six days versus the dollar as a rebound in Asian stocks
bolstered investor confidence in higher-yielding assets.
The yen also declined on speculation Japan's central bank will
sell the currency for the first time since March 2004 to help
exporters. Japanese Finance Minister Shoichi Nakagawa said yesterday
the government is ready to act if needed to halt gains in the yen,
which earlier traded near a 13-year high against the dollar and its
strongest since May 2002 versus the euro.
``It's all about what's happening in stocks and that's giving us the
impetus to unwind some of the risk-aversion trades,'' said Jeremy
Stretch, a senior currency strategist in London at Rabobank
International, the third-largest Dutch bank. ``Intervention is a real
risk.''
Gains in the common European currency may be limited after
European Central Bank President Jean-Claude Trichet said yesterday he
may cut interest rates next week. Europe's economy is on the brink of a
recession, with the region's manufacturing and service industries
contracting at a record pace in October and German business confidence
dropping to a five-year low.
Investors are betting the ECB will lower borrowing costs further by
June after cutting the main refinancing rate by a half point to 3.75
percent on Oct. 8. The implied yield on the three-month Euribor
contract expiring in June fell to 3.020 percent today from 3.225
percent a week earlier. ``Worries over Europe's economy are heightening
and Trichet has signaled lower rates,'' said Ryohei Muramatsu, manager
of Group Treasury Asia at Commerzbank AG in Tokyo. ``The bias for the
euro is down.'' The euro may weaken to $1.22 this week, he forecast.