Bloomberg News

Pound Rises Against Euro as Waning EU Optimism Spurs Safety Bid

October 28, 2011

Oct. 28 (Bloomberg) -- The pound rose against the euro, snapping a two-day decline, as waning optimism that the European Union’s plan to resolve the debt crisis spurred demand for the comparative safety of U.K. assets.

Gilts erased losses and sterling rallied to an almost two- month high versus the dollar after Italian borrowing costs increased at a debt sale today, prompting declines in European and U.S. equities. U.K. consumer confidence dropped to a 2 1/2- year low this month as Britons became more pessimistic about spending, GfK NOP Ltd. said. Sterling’s advance extended its third consecutive week of gains versus the dollar.

“There’s a modest move back to risk-off after yesterday’s misplaced euphoria,” said Shant Movsesian, a London-based strategist at 4Cast Ltd., a research company that counts central banks among its customers. “There’s a long way to go as far as sorting out this euro-zone debt crisis is concerned. There’s a slight safe-haven flow going into the gilt market, and euro is trailing sterling due to a bit of profit taking.”

Sterling gained 0.4 percent to 87.82 pence per euro at 4:47 p.m. in London, paring its weekly loss to 0.8 percent. It fell to 88.31 pence yesterday, the weakest since Sept. 8. The pound gained 0.2 percent to $1.6130, following a rise to $1.6153 which was the strongest intraday level since Sept. 6. The move extended its advance against the dollar this week to 1.1 percent

The 10-year gilt yield was less than one basis point lower at 2.62 percent, after climbing to 2.71 percent. The 3.75 percent bond due September 2021 traded at 109.80.

Fall Short

The EU’s plan to stem the debt crisis will fall short, Andrew Bosomworth, a senior portfolio manager at Pacific Investment Management Co. in Munich, wrote in a research note received by e-mail today. “This piecemeal strategy by the euro zone’s leaders, one reactive policy slice at a time, is backfiring,” he wrote.

EU leaders meeting until the early hours of yesterday in Brussels agreed to boost the region’s rescue fund capacity to 1 trillion euros ($1.4 trillion), and persuaded owners of Greek bonds to accept 50 percent losses on their holdings.

The Stoxx Europe 600 Index declined 0.2 percent, while the Standard and Poor’s 500 Index fell 0.3 percent.

The Italian Treasury sold 3.08 billion euros in bonds due in 2014 to yield 4.93 percent, up from 4.68 percent at the previous auction of the securities last month. Italy also sold debt due in 2017, 2019 and 2022.

The U.K.’s GfK consumer-sentiment index dropped two points from September to minus 32, the lowest since February 2009, the London-based research group said.

The pound has weakened 1.2 percent in the past month against a basket of nine developed-market peers, extending its decline over the past year to 4.8 percent, according to Bloomberg Correlation-Weighted Currency Indexes.

--Editors: Matthew Brown, Nicholas Reynolds

To contact the reporters on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net

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


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