Bloomberg News

Pound Slumps Versus Dollar as U.K. Jobless-Benefit Claims Surge

June 15, 2011

June 15 (Bloomberg) -- The pound slumped versus the dollar after a report showed U.K. jobless claims surged more than economists estimated in May and wage growth slowed, damaging the case for the Bank of England to raise interest rates.

U.K. government bonds fell as the Office for National Statistics said jobless-benefit claims jumped 19,600 from April, when they rose a revised 16,900. The median estimate of 22 economists in a Bloomberg News survey was for an increase of 6,500. Sterling held gains against the euro as Europe’s finance ministers struggled to break a deadlock on aid for Greece.

“The employment data does emphasize that austerity is here and now,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “Sterling is being sold on the back of it on anticipation that the BOE will need to revisit any plans for raising interest rates. The Monetary Policy Committee would not want a situation where they’re increasing interest rates in an economy where unemployment is rising.”

Sterling slid 1 percent to $1.6216 as of 5:02 p.m. in London. It strengthened 0.6 percent to 87.70 pence per euro.

Wage growth excluding bonuses slowed to 2 percent in the three months through April, the weakest since the quarter through August.

Euro-Area Woes

The pound had earlier been supported by a separate report that showed U.K. consumer confidence jumped the most in 5 1/2 years in May. An index of sentiment compiled by the Nationwide Building Society gained 11 points from April to 55, the highest in five months.

Investors last week pushed back bets on the month that the central bank will next increase rates to May of next year, forward contracts on the sterling overnight interbank average show. As recently as February, traders were betting on an increase as soon as May of this year, data from Tullett Prebon Plc showed.

Bank of England Governor Mervyn King will speak at his annual Mansion House speech to bankers in London tonight.

An emergency session of European finance ministers in Brussels yesterday failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new Greek aid package, with European Central Bank warnings backed by France that the move might constitute a sovereign default.

U.K. government bonds advanced after a sale of 2.25 billion pounds of debt maturing in 2027. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount offered, was 1.85, compared with 2.15 at a sale in October.

The yield on the 10-year gilt slipped six basis points to 3.24 percent. The two-year note yield also dropped six basis points, to 0.78 percent, the lowest since November 10.

Gilts have returned 2.3 percent this year, compared with a 2.6 gain on U.S. Treasuries, according to indexes compiled by the European Federation of Financial Analysts Societies and Bloomberg.

--Editors: Mark McCord, Keith Campbell

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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