Bloomberg News

Pound Retreats From 16-Month High Against Euro After Meeting

January 09, 2012

Jan. 9 (Bloomberg) -- The pound retreated from a 16-month high against the euro after the leaders of Germany and France met to craft a plan for rescuing the 17-nation common currency.

Gilts were little changed after German Chancellor Angela Merkel and French President Nicolas Sarkozy held talks in Berlin to work on a new rulebook for fiscal discipline negotiated at a Dec. 9 summit. Gains in the pound were also tempered after Lloyds Bank Corporate Markets said its index of U.K. job security fell to the lowest since the measure began in 2004.

The pound’s retreat “is mostly due to a better euro,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “I think we’ll hear some positive rhetoric from the politicians after the talks today, but I don’t think we’ve seen anything that will significantly change the crisis.”

The pound was little changed at 82.56 pence per euro at 4:57 p.m. London time, after rising to 82.22 pence, the strongest since Sept. 10, 2010. Sterling gained 0.1 percent to $1.5441. The U.K. currency was little changed at 118.71 yen.

Merkel welcomed progress on talks on the fiscal pact at a joint press conference with Sarkozy after their meeting and said there was “very close agreement” between their two countries. She said euro-area leaders will discuss making the European bailout fund “more efficient” and that Germany and France were ready to examine how to speed up capital payments into the European Stability Mechanism bailout fund.

Job Security

An index of job security in the U.K. slid to minus 33 from minus 21 in November, the unit of Lloyds Banking Group Plc said in an e-mailed report. An index of consumers’ inflation expectations dropped 5 points from November to 65, the lowest since December 2009.

The Bank of England will leave its bond-purchase target unchanged at its next meeting on Jan. 12, according to all but one of 41 economists in a Bloomberg News survey. The nine-member Monetary Policy Committee will leave the benchmark interest rate at a record-low 0.5 percent, a separate survey showed.

The 10-year gilt yield fell one basis point, or 0.01 percentage point, to 2.01 percent. The 3.75 percent bond due September 2021 gained 0.118, or 1.18 pounds per 1,000-pound face amount, to 115.268. Two-year yields dropped two basis points to 0.39 percent.

Gilts have returned 18 percent in the past year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German government bonds have gained 9.6 percent and U.S. Treasuries added 10 percent, the indexes show.

Sterling has advanced 2.8 percent in the past six months according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies, the third best performer after the yen and the dollar.

--Editors: Nicholas Reynolds, Mark McCord

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net

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


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