Britain's currency climbed for a second day against its European counterpart after the central bank's financial stability report said ``risk appetite will return gradually in the coming months.'' The pound also rose after the Chartered Institute of Purchasing and Supply said its factory-price index gained to the highest level since at least 1999.
The Bank of England is ``a little bit more upbeat about the situation and it appears that banks may have been able to sidestep the worst of the downdraft of the credit crisis,'' said Jeremy Stretch, a senior market strategist in London at Rabobank International, the third-largest Dutch bank. ``It's helping the pound.''
The pound gained as much as 0.8 percent to 78.02 pence per euro, the highest level since March 26, and was at 78.25 pence by 4:50 p.m. in London.
Britain's currency fell against the dollar, as interest-rate futures showed traders are still betting the U.K. central bank will lower borrowing costs further, while the Federal Reserve yesterday signaled it may pause after reducing its target rate to 2 percent.
The pound dropped to $1.9756, from $1.9869 yesterday. The dollar climbed versus 12 of the 16 most-traded currencies tracked by Bloomberg today. The pound advanced 0.2 percent against the dollar and rose 1.1 percent versus the euro in April.
U.K. policy makers have lowered the main rate to 5 percent from 5.75 percent since December as a credit crisis threatened growth in Europe's second-biggest economy.
The Fed yesterday made its seventh quarter-point interest- rate cut since September to stave off a recession. Policy makers at the same time backed away from previous language signaling a preference for further cuts and described reductions to date as ``substantial.''
A gauge of U.K. producer prices based on a survey of more than 600 manufacturers by the Chartered Institute of Purchasing and Supply today rose to 61.9, the most since records began. An index of factory growth fell to 51, the lowest in three months.