Bloomberg News

Pound Strengthens Versus Euro on Sovereign-Debt Crisis Concern

November 27, 2011

Nov. 25 (Bloomberg) -- The pound rose against the euro as investors sought the relative safety of the U.K. currency on concern euro-area leaders will struggle to prevent their economies worsening amid the region’s sovereign-debt crisis.

Sterling appreciated versus a majority of its 16 major peers tracked by Bloomberg, gaining most against the Swiss franc. It headed for a second weekly decline against the dollar, falling to a seven-week low. U.K. stocks advanced for the first time in 10 days, damping demand for fixed-income assets. The FTSE 100 Index climbed 0.7 percent, while 10-year gilts dropped the most in four weeks.

“It’s likely that sterling will outperform the euro near- term, even though cable is likely to see further downside pressure,” said Jane Foley, a senior currency strategist at Rabobank International in London, referring to the pound-dollar exchange rate. “The foreign-exchange market is failing to produce many alternative safe-haven currencies” to the dollar, she said.

The pound gained 0.6 percent to 85.64 pence per euro at 4:42 p.m. London time, little changed over the week. Sterling traded at $1.5478 after falling to $1.5423, the weakest since Oct. 6. It has dropped 2.1 percent against the greenback since Nov. 18, the most since the five-day period ended Sept. 23.

The pound may strengthen against the euro toward 84.85 pence, according to Foley. That’s the Nov. 10 low and the pound’s strongest level against the 17-nation common currency since March 3. Sterling may slip toward $1.54 by the end of the year, she said.

BOE Minutes

The pound has declined 3 percent in the past year, the third-worst performer after the Canadian and New Zealand dollars among 10 developed-market peers measured by Bloomberg Correlation-Weighted Indexes.

The Bank of England cut its growth and inflation forecasts last week and said yesterday the threat from the euro-area debt crisis had increased.

Minutes of the central bank’s Nov. 9-10 meeting released Nov. 23 showed some policy makers said an increase in stimulus may be needed. The minutes revealed the nine-member Monetary Policy Committee voted unanimously to keep its key interest rate at a record low 0.5 percent and hold its target for quantitative easing at 275 billion pounds.

The 10-year gilt yield climbed 14 basis points, or 0.14 percentage point, to 2.30 percent. The 3.75 percent bond due September 2021 dropped 1.300, or 13 pounds per 1,000-pound face amount, to 112.655. The two-year yield dropped two basis points to 0.46 percent.

Gilts have returned 16 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt gained 6.9 percent and U.S. Treasuries rose 9.8 percent, the indexes show.

--Editors: Mark McCord, Nicholas Reynolds

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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