Sterling surges as investors seize on global green shoots

Sterling surges as investors seize on global green shoots

Sterling surged against the dollar on Friday as investors seized on new evidence that the downturn in the global economy may be easing.

By Telegraph staff
Last Updated: 4:53PM BST 29 May 2009

The pound stormed beyond $1.61, its highest level since November, after Nationwide figures showed an unexpected rise in house prices this month. The better number in the UK was added to by Japan, where industrial production rebounded, and the strong performance of the Indian economy in the first quarter.

The currency closed at $1.6125 in London, up almost two cents on the day.

Although economists have generally cautioned that any recovery will be very slow, financial markets are currently focused on any evidence of improvement from the free fall seen in the wake of Lehman Brothers' collapse.

"Sterling was absolutely hammered in the fourth quarter and people were loathe to hold it because it was seen as very risky," said Paul Robinson of Barclays. "But as risk appetite comes back into the market, then that's good for the currency."

It's that return of investors' willingness to take risks that is also hurting the dollar, explained Mr Robinson. At the height of the banking crisis last autumn people flocked to the dollar because it is the world's most liquid currency and provided shelter during the turmoil. That logic is now ebbing, he said.

In the UK, house prices gained 1.2pc - only their second gain in the last year. Sentiment was also buoyed after a survey showed that UK consumers are now at their most confident in almost a year. The news from GfK comes a day after the CBI said that retailers are feeling more optimistic than at anytime since 2007.

However, Nationwide's own chief economist, Martin Gahbauer, was quick to downplay suggestions that house prices may have reached a bottom.

"Although the short-term trend in house prices has clearly improved from where it was at the beginning of the year, it is still too early to say that the market is turning definitely," said Mr Gahbauer.

http://www.telegraph.co.uk/finance/economics/houseprices/5405998/Sterling-surges-as-investors-seize-on-global-green-shoots.html