Bloomberg News

Pound Weakens Against Dollar as Equities Slide on Greek Concern

June 20, 2011

June 20 (Bloomberg) -- The pound weakened against the dollar as falling stock markets sapped demand for riskier assets after European governments failed to agree on releasing a loan payment to Greece.

The yield on 10-year U.K. government bonds slipped to the lowest in seven months, as investors sought the relative safety of government debt. Britain’s benchmark FTSE 100 Index of equities and the pan-European Stoxx Europe 600 declined 1 percent.

The market “is again focused on headline risk from Greece,” said Chris Walker, a foreign-exchange strategist at UBS AG in London. “Safe havens are likely to stay the mile. If you are looking to buy the dollar against something, then against sterling is quite a good bet. It’s one of our least favorite currencies.”

The pound fell 0.2 percent to $1.6161 as of 12:41 p.m. in London. Sterling strengthened 0.5 percent against the euro to 87.94 pence and rose 0.1 percent to 129.69 yen.

Sterling was supported versus the euro as decisions on the next aid payout to Greece and a three-year follow-up package were put off until early July. Euro-area finance ministers also pushed Greece to pass laws to cut its deficit and sell off state-owned assets.

The yield on 10-year U.K. government bonds was little changed at 3.19 percent after sliding to 3.16 percent.

Bank Minutes

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.

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.

U.K. Home Prices

Short-sterling futures rose, signaling traders cut bets on an increase in borrowing costs. The implied yield on the on the June 2012 short-sterling futures contract fell two basis points to 1.16 percent.

Average home prices in London jumped 1.8 percent from May to 438,622 pounds ($708,680), said London-based Rightmove Plc, the operator of the U.K.’s biggest property website today. Nationally, values increased 0.6 percent, according to Rightmove, which added it doesn’t expect gains to be sustained.

--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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