Bloomberg News

Pound Rises Versus Euro on Concern EU Debt Plans ‘Insufficient’

February 02, 2012

Feb. 2 (Bloomberg) -- The pound rose to a one-week high against the euro as speculation European leaders are failing to resolve the region’s debt crisis boosted demand for the safety of the U.K. currency.

Sterling gained for the third time in four days versus the euro as Luxembourg Prime Minister Jean-Claude Juncker said steps to tackle the debt crisis adopted at a summit on Jan. 30 were “largely insufficient.” Two-year gilts rose after a report showed U.K. construction output slowed in January, boosting demand for haven assets.

Juncker’s comment “was a very negative one for the euro,” said Lauren Rosborough, a currency strategist at Societe Generale SA in London. “The U.K. economy isn’t going stellar, but that said, politicians and central banks have both been on board to try to remedy the situation. Those things have been delayed to some degree in Europe, consequently the market has punished Europe versus the U.K.”

The pound appreciated 0.3 percent to 82.91 pence per euro at 2:01 p.m. London time after rising to 82.75 pence, the strongest since Jan. 23. Sterling was little changed at $1.5818.

The U.K. currency may advance to 82 pence per euro, Rosborough said.

European Union leaders will need to take further steps when they convene again in early March, Juncker said in a speech today in Luxembourg.

“We have an internal market, we have a common currency, but we don’t have a centralized economic authority,” said Juncker, who leads the group of euro-area finance ministers. At the Jan. 30 summit, leaders agreed to accelerate the setup of a permanent 500 billion-euro ($656 billion) rescue fund and endorsed a German-inspired deficit-control treaty.

Weekly Gain

The pound has gained 0.4 percent in the past week according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar declined 0.6 percent, and the euro fell 0.5 percent.

The two-year gilt yield dropped two basis points to 0.38 percent. Ten-year yields were little changed at 2.06 percent.

A gauge of U.K. building activity declined to 52.5 in January from 53.2 in December, according to a survey of purchasing managers by Markit and the Chartered Institute of Purchasing and Supply. A reading above 50 indicates expansion.

The U.K. sold 1.25 billion pounds of inflation-linked debt maturing in March 2029 at an average yield of minus 0.188 percent. The auction attracted bids for 2.27 times the securities allotted.

Gilts handed investors a loss of 0.2 percent this year, lagging behind German government bonds, which rose 0.1 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

--Editor: Nicholas Reynolds, Mark McCord

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

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


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