Bloomberg News

Pound Weakens Versus Most Peers on U.K. Economic Growth Concern

October 24, 2011

Oct. 24 (Bloomberg) -- The pound weakened against most of its major peers tracked by Bloomberg on concern U.K. economic growth is slowing.

The pound was little changed versus the euro amid doubts European leaders will forge a durable solution to the debt crisis, reducing demand for the British currency. U.K. Prime Minister David Cameron warned turmoil in the euro area is having a “chilling effect” on the U.K. economy. A complete rescue blueprint for a crisis that won’t be released until another European summit is held in two days. U.K. government bonds fell as stocks rose.

“Once the dust settles we’ll be looking into relative growth differentials rather than anything else and clearly sterling is going to be on the back foot,” said Geoffrey Yu, a currency strategist at UBS AG in London. “The U.K. is going to underperform.”

The pound was little changed at 87.14 pence per euro at 5:27 p.m. London time, after strengthening as much as 0.4 percent to 86.74. The U.K. currency fell 0.1 percent to 121.52 yen and strengthened 0.2 percent versus the dollar to $1.5978.

Sterling has dropped 1.2 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies, as the British government introduced the deepest public-spending cuts since World War II in its attempt to eliminate the structural deficit by 2015.

The 10-year gilt yield rose three basis points to 2.56 percent. The 3.75 percent bond maturing September 2021 fell 0.25, or 2.5 pounds per 1,000 pound face amount, to 110.34. Two- year government notes yielded 0.59 percent.

Cameron Versus Sarkozy

Cameron and French President Nicolas Sarkozy yesterday argued over the right of non-euro nations to attend an Oct. 26 European summit as leaders scramble to reach an agreement to stem the area’s debt woes. Cameron said the talks should include leaders from all European Union states. Sarkozy replied that if the U.K. wanted to be involved it should have joined the euro, said two people familiar with the summit encounter.

“We must safeguard the interests of countries that want to stay outside the euro, particularly with respect to the integrity of the single market for all 27 countries of the EU,” Cameron told reporters after the meeting. “This crisis means that greater fiscal and economic integration in the euro zone is inevitable, but this must not be at the expense of Britain’s national interest.”

U.K. government debt has returned 11 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, surpassing the 6.6 percent return for German bunds and 7.7 percent increase for U.S. Treasuries.

--Editors: Matthew Brown, Nicholas Reynolds

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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