Bloomberg News

Pound Reaches 15-Month High Versus Euro as U.S. Payrolls Rise

January 06, 2012

Jan. 6 (Bloomberg) -- The pound reached a 15-month high versus the euro, heading for a fifth weekly gain, as European confidence in the economy slid to a two-year low, fueling concern that troubled nations will struggle to cut deficits.

Sterling declined against the dollar after a report showed U.S. employers added more workers to payrolls in December than economists predicted and the jobless rate fell. Gilts rose as concern over the euro-debt crisis outweighed U.S. employment gains. An index of executive and consumer sentiment in the 17- nation euro area dropped to 93.3 in December from a revised 93.8 the previous month, the European Commission in Brussels said today.

“The pound is underpinned by demand for sterling assets while the euro region is still a trouble spot,” said Geoffrey Yu, a currency strategist at UBS AG in London. “The benefit of the pound is that the U.K. is not in the euro zone.”

The pound climbed to 82.39 pence per euro, the strongest since Sept. 10, 2010, before trading little changed at 82.54 pence as of 4:48 p.m. London time, 0.9 percent higher than last week. Sterling dropped 0.5 percent to $1.5426 and 118.87 yen.

Ten-year gilt yields fell three basis points, or 0.03 percentage point, to 2.03 percent after rising to as high as 2.10 percent immediately after the U.S. payrolls data. The 3.75 percent bond due September 2021 rose 0.225, or 2.25 pounds per 1,000-pound ($1,540) face amount, to 115.04. Two-year note yields were little changed at 0.41 percent. They reached a record low 0.271 percent on Dec. 30.

U.S. Jobs

Sterling has risen 2.8 percent against a basket of nine developed-market peers in the past six months, making it the third-best performer after the Japanese yen and the U.S. dollar, according to Bloomberg Correlation-Weighted Indexes.

The U.S. added 200,000 jobs in December following a revised 100,000 gain in November that was smaller than first estimated, Labor Department figures showed in Washington. The median projection in a Bloomberg News survey called for a December increase of 155,000. The unemployment rate unexpectedly dropped to 8.5 percent, the lowest since February 2009.

Gilts declined briefly after the U.S. data and soon rebounded as concern about the euro debt turmoil drove demand for the safest assets. U.K. government bonds were also underpinned after Fitch Ratings became the third company in two months to cut Hungary’s credit ranking to junk. Austrian banks are among the largest lenders in Hungary.

Gilts ‘Haven’

“Perhaps there is realization in the market that the euro debt problem isn’t going to go away any time soon despite improvement in the U.S. economy,” said Marchel Alexandrovich, a senior European economist at Jefferies International Ltd, one of 21 gilt primary dealers. “Europe is a trouble spot and gilts are a haven asset.”

ECB Governing Council member Klaas Knot said Germany should support raising the European emergency fund to help end the debt crisis.

“The most important obstacle lies in Germany, not in the Netherlands,” Knot said in an interview on Dutch public television last night. “I think that more money is needed and we will use the time to convince our German colleagues.”

Gilts outperformed German bonds today. The yield spread between 10-year gilts and German bunds narrowed to 17 basis points from 19 basis points yesterday.

--Editors: Matthew Brown, Nicholas Reynolds

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net;

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


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