Sterling rallies against the Dollar as investors eye an economic recovery

The figures added to hopes that the nation's housing market may be on the mend following the subprime crisis

Sterling hit a seven-month high against a broadly weaker dollar on Tuesday as surprisingly strong figures on the U.S. housing market fuelled speculation the global economic downturn may be easing. Pending sales of U.S. homes rose a monthly 6.7 percent in April, data showed on Tuesday, eclipsing forecasts for a 0.5 percent rise and posting their biggest monthly gain in seven years. The figures added to hopes that the nation's housing market may be on the mend following the subprime crisis, boosting share prices and triggering broad selling in the dollar, which has suffered as investors' appetite for riskier assets increased. "The rise in sterling is pretty much the result of continued, broad-based weakness in the dollar," said Naeem Wahid, currency strategist at Bank of Scotland Treasury Services. The GBP/USD is currently trading at $1.6620 as of 8:45am, London time.

The euro rose against the yen after a report showed Australia’s economy unexpectedly expanded last quarter, boosting demand for higher- yielding currencies. Australia’s dollar strengthened against all of the 16 most- traded currencies as Asian stocks rose after the report added to evidence the worst of the global recession may be over. The yen erased earlier gains after a Bank of Japan official signaled interest rates may stay low for some time. The Dollar Index traded close to the lowest level this year on concern the greenback will lose its role as the world’s reserve currency. “Risk appetite is improving in the market, which has been attracting cash away from safe-haven currencies like the dollar” and the yen, said Kyohei Morita, chief economist at Barclays Capital in Tokyo. Investors are “searching for higher yields.” The USD/JPY is currently trading at 96.30 as of 9:03am, London Time.

General Motors Corp., seeking to shed assets to emerge from bankruptcy, agreed to sell the Hummer sport-utility vehicle brand to China’s Sichuan Tengzhong Heavy Industrial Machinery Co. Tengzhong will assume Hummer’s dealer agreements and a senior management team, the companies said in a joint statement yesterday. GM and Tengzhong also plan to form a long-term contract assembly and supply agreement. Hummer is worth an estimated $500 million, GM said in bankruptcy court documents. Selling Hummer will secure more than 3,000 U.S. jobs and help GM move toward a goal of offloading four U.S. brands to exit bankruptcy as a leaner, more profitable company. The deal may also help Tengzhong grow in China’s SUV market, which surged 25 percent last year on rising affluence.