Bloomberg News

Pound Rises Against Euro on European Debt Concerns; Gilts Fall

September 26, 2011

Sept. 26 (Bloomberg) -- The pound strengthened for a second day against the euro as concern European policy makers will fail to resolve the region’s debt crisis spurred demand for the perceived safety of the British currency.

Sterling appreciated versus all but two of its 16 major counterparts amid uncertainty over whether Greece will receive its next round of emergency loans. The U.K currency climbed from within two cents of a 12-month low against the dollar. Bank of England policy maker Ben Broadbent said inflation expectations remain under control. Gilts weakened before the government sells 40-year debt this week.

“Investors are looking for an alternative to the euro, and the pound benefits,” said Neil Jones, London-based head of European hedge-fund sales at Mizuho Corporate Bank Ltd. “The U.K. has a stronger element of flexibility, autonomy and independence.”

The pound appreciated 0.6 percent to 86.84 pence per euro at 4:24 p.m. in London, after rising to 86.52 pence, the strongest level since Sept. 14. Sterling advanced 0.7 percent to $1.5563, after earlier falling to $1.5433. It slid to $1.5328 on Sept. 22, the weakest since September 2010. The pound gained 0.5 percent to 118.88 yen.

The Bank of England’s Broadbent, who joined the Monetary Policy Committee in June, said Europe’s debt crisis and the cooling global recovery may restrain price pressures.

‘Little Evidence’

“I see little evidence that, so far at least, high spot inflation has materially dented confidence” in the central bank’s 2 percent inflation target, Broadbent said during a speech in London. “Most importantly for policy today, the international environment is clearly disinflationary.”

Euro-region finance ministers are unlikely to decide on the disbursement of the next tranche of aid to Greece when they meet on Oct. 3 because a report by the International Monetary Fund, European Central Bank and European Commission has been delayed, German Deputy Finance Minister Joerg Asmussen said yesterday.

The pound has gained 1.7 percent in the past three months, paring its 12-month decline to 4 percent, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.

The 10-year gilt yield rose six basis points to 2.43 percent. The two-year rate added three basis points to 0.56 percent, after dropping to a record low 0.477 percent on Sept. 22, the least since Bloomberg began collecting data on the securities in 1992.

The U.K. Debt Management Office said on Sept. 21 it plans to sell 3.75 percent bonds maturing in July 2052 through banks this week, subject to market conditions.

Gilts have returned 9.3 percent since the end of June, and 11 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt has gained 8.7 percent since the end of last year, and U.S. Treasuries have returned 9.3 percent, the indexes show.

--With assistance from Scott Hamilton in London. Editors: Nicholas Reynolds, Mark McCord

To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

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


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