June 20 (Bloomberg) -- The pound advanced versus the euro after European governments failed to agree on releasing a loan payment to Greece, making sterling-denominated assets more attractive.
The yield on 10-year U.K. government bonds earlier slipped to the lowest in seven months as investors sought the relative safety of government debt. Britain’s benchmark FTSE 100 Index of equities dropped 0.5 percent and the Stoxx Europe 600 declined 0.7 percent. European Financial Stability Facility chief Klaus Regling said the effective capacity of the euro-area bailout fund will be raised.
The market “is again focused on headline risk from Greece,” said Chris Walker, a foreign-exchange strategist at UBS AG in London. “As long as headline risk remains the driver, we’ll have a lot of noise trading the euro around that and safe havens are likely to stay the mile.”
Sterling strengthened 0.1 percent against the euro to 88.30 pence as of 4:15 p.m. in London, after earlier surging to 87.90 pence. The pound was little changed at $1.6199 and rose 0.3 percent to 129.95 yen.
The yield on 10-year U.K. government bonds was little changed at 3.21 percent after sliding to 3.16 percent, the least since November 12.
Gilts have returned 3 percent this year, compared with a 3.3 percent gain on Treasuries, according to European Federation of Financial Analysts Societies and Bloomberg indexes.
Indicators ‘Pretty Weak’
The central bank publishes the minutes of its last policy meeting on June 22. The Monetary Policy Committee held rates at a record low 0.5 percent for a 28th month.
“The main drivers of the U.K. are still pretty weak and the leading indicators are still pretty weak, so overall it’s likely to offer quite a cautious tone,” Walker said of the minutes. “I’d certainly want to be short ahead of it, so until then we do see sterling struggling further.”
The pound may slide below $1.60 if the minutes indicate interest rates are likely to stay at a record low into next year, according to BNP Paribas SA.
“The BOE minutes this week will likely indicate that the BOE will keep rates on hold for a long time,” foreign-exchange strategists led by Ray Attrill in New York wrote in an e-mailed report today. The U.K.’s central bank will not raise interest rates until at least 2013 due to “appalling” economic data and low wage growth, they said.
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