Bloomberg News

Pound Weakens Versus Euro Before European Debt-Crisis Summit

October 26, 2011

Oct. 26 (Bloomberg) -- The pound weakened versus the euro for the first day in four amid optimism Europe’s leaders will find a solution to the euro-region debt crisis at a summit today in Brussels.

U.K. government bonds advanced after data showed an index of factory orders fell and optimism plunged to the lowest level in 2 1/2 years this month. Sterling was little changed against the dollar as leaders prepared to debate the shape of Greece’s second bailout, the recapitalization of banks and the retooling of the 440 billion-euro ($612 billion) rescue fund into a more potent weapon against the region’s turmoil.

“It’s highly uncertain what will happen,” said John Hydeskov, chief analyst at Danske Bank A/S in London. “In sterling against the euro there’s still this very narrow range between 87 and 88 pence. Eighty-eight is likely to be broken but it may take some time.”

The pound was 0.2 percent weaker at 87.07 pence per euro at 12:06 p.m. London time. Sterling was little changed at $1.5985, after strengthening to $1.6042, the highest level since Sept. 8. The euro bought $1.3915, a 0.1 percent gain.

The pound has strengthened 2 percent in the past three months, paring a 12-month decline to 3.3 percent, according to Bloomberg Correlation-Weighted Indexes.

Gilts Gain

“If tonight’s EU summit provides the conclusive and specific solution to the debt crisis that everyone is hoping for, I would expect euro-dollar to rally sharply and the pound would follow that upwards,” said Elizabeth Gregory, a Geneva- based market strategist at Swissquote Bank SA. “If we don’t get any solution, there’s going to be a devastating effect. The euro’s going to collapse through $1.35 levels and I think the pound is going to get dragged down too.”

Gilts gained, pushing the 10-year yield four basis points lower to 2.47 percent. The 3.75 percent security due September 2021 rose 0.395, or 3.95 pounds per 1,000-pound face amount, to 111.160. The two-year note rate rose three basis points to 0.55 percent.

The factory orders gauge declined to minus 18 in October, its weakest reading in a year, from minus 9 the previous month, the Confederation of British Industry said in a report in London today. A quarterly measure of sentiment fell to minus 30, the lowest since April 2009, from minus 16 in July.

--With assistance from Keith Jenkins. Editors: Mark McCord, Nicholas Reynolds

To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; 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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