Bloomberg News

Pound Weakens Against Euro as U.K. Employment Confidence Wanes

October 10, 2011

Oct. 10 (Bloomberg) -- The pound weakened against the euro after a report showed Britons’ confidence in the employment outlook fell for a third month in September to its lowest level since February, underlining the fragility of the economy.

Sterling depreciated versus most of its 16 major peers tracked by Bloomberg, losing most against Switzerland’s franc and Norway’s krone. The Bank of England last week boosted its asset-purchase program, known as quantitative easing, by 75 billion pounds ($117 billion) to 275 billion pounds in a bid to revive U.K. growth. Central bank policy maker David Miles is to give a speech to the Royal Economic Society in London today.

“There’s no massive reason to buy the pound,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “The data’s been a bit mixed and has been getting worse. Quantitative easing only gives investors another reason not to buy sterling.”

Britain’s currency depreciated 1.4 percent to 87.19 pence per euro at 4:36 p.m. London time. That’s the biggest one-day loss since Oct. 23, 2009. It strengthened 0.8 percent to $1.5684 and fell 1.8 percent to 1.4166 francs.

The FTSE 100 Index of stocks extended a worldwide advance in equities, gaining 1.8 percent. The Stoxx Europe 600 Index added 1.7 percent.

An index of consumer sentiment toward hiring prospects fell 1 point to minus 67 from August, taking its decline over the third quarter to 17 points, a unit of Lloyds Banking Group Plc said today.

Quantitative Easing

The euro rose against the dollar and the yen after German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged to deliver a plan to help banks and repeated a commitment to keep Greece in the single-currency area.

“There’s a bit less nervousness about the euro zone and the euro is strengthening,” Investec’s McDarby said.

The pound fell against most of its major counterparts last week as the Bank of England’s reactivation of its quantitative- easing program fueled concern that rising inflation will erode the value of the currency. The central bank, which expects to complete the new round of purchases in four months, said slowing global growth and the turmoil in Europe threaten the U.K. recovery.

Bank Governor Mervyn King said the move, the first loosening of U.K. monetary policy since the depths of the recession in 2009, was a response to what may be the worst financial crisis ever.

Growth Slows

The U.K economy grew less than economists forecast in the second quarter, expanding 0.1 percent from the previous three months, the Office for National Statistics said last week. That was lower than the 0.2 percent previously published and missed the 0.2 percent expansion forecast in a Bloomberg survey.

“There is quite a lot of scope for further quantitative easing,” policy maker Martin Weale said yesterday in an interview with Sky News yesterday. Still, “the case for support has grown in the autumn as the financial situation has appeared to deteriorate,” he said.

The pound has declined 1.4 percent in the past six months, according to Bloomberg Correlation-Weighted Currency Indexes, which measure a basket of 10 developed-market currencies.

U.K. government bonds fell, pushing the 10-year yield up 11 basis points to 2.58 percent. Two-year note yields were three basis points higher at 0.65 percent.

--Editors: Mark McCord, Peter Branton

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net.

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


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