Bloomberg News

Pound Falls Versus Dollar as Greece Concern Persists; Gilts Rise

February 22, 2012

Feb. 21 (Bloomberg) -- The pound fell for the first time in five days against the dollar as concern Greece will struggle to implement the austerity measures agreed in its bailout package boosted demand for the relative safety of the U.S. currency.

Sterling also weakened versus the greenback on speculation its 1 percent rally in the past four days was excessive. Gilts rose, with yields falling from the highest level since December. The pound strengthened earlier as a government report showed the U.K. budget surplus widened last month. The U.K. sold 3.75 billion pounds ($5.92 billion) of index-linked gilts through banks today.

“We are bearish on the pound” against the dollar, said Sara Yates, a foreign-exchange strategist at Barclays Plc in London. “It’s not yet clear whether Greece will be able to implement this package, there are a lot of implementation risks.”

The pound fell 0.5 percent to $1.5774 at 1:41 p.m. London time after rising to $1.5881 yesterday, the strongest since Feb. 9. Sterling dropped 0.4 percent to 125.68 yen, and gained 0.2 percent to 83.75 pence per euro.

European finance ministers earlier today agreed to give Greece the 130 billion euros ($172 billion) of aid it needs to avoid a March bankruptcy. Any respite may prove temporary after the nation signed up to a program of austerity and economic reform aimed at slashing debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year.

Sterling has dropped 0.5 percent over the past month according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. That extends this year’s loss to 1.2 percent, the indexes show.

Gilts Gain

The yield on the 10-year gilt dropped two basis points, or 0.02 percentage point, to 2.21 percent. The 3.75 percent bond due in September 2021 gained 0.185, or 1.85 pounds per 1,000- pound face amount, to 113.225. The yield earlier climbed to 2.25 percent, the highest since Dec. 7.

Britain’s revenue exceeded spending by 7.75 billion pounds in January, compared with a surplus of 5.2 billion pounds a year earlier, the Office for National Statistics said today in London. The median of forecasts in a Bloomberg News survey was 6.3 billion pounds.

The index-linked gilt maturing in March 2062 was priced at 113.456, equivalent to a real yield of 0.0995 percent, the Debt Management Office said today in a statement.

--Editors: Nicholas Reynolds, Paul Dobson

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

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


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