Bloomberg News

Pound Gains Most in Two Weeks Versus Euro on European Sentiment

March 29, 2012

The pound rose the most in two weeks against the euro after a European report showed consumer confidence fell, boosting the appeal of U.K. assets as a haven.

Sterling pared its first quarterly drop versus the 17- nation currency since June as Europe’s biggest utility GDF Suez SA offered to pay 6 billion pounds ($9.55 billion) for the shares in International Power Plc (IPR) it doesn’t already own, fueling optimism capital will flow into Britain. Gains in the pound were tempered after Nationwide Building Society said U.K. house prices dropped this month. Gilts advanced as investors sought safer assets.

“With the problems in the euro zone it will be difficult for the euro to gain significantly against the pound,” said You-Na Park, a currency strategist at Commerzbank AG in Frankfurt. “They both have a lot of problems and don’t look that good.”

The pound climbed 0.5 percent to 83.38 pence per euro at 4:22 p.m. London time after rising as much as 0.6 percent, the biggest gain since March 13. The U.K. currency has fallen 0.1 percent versus the euro this year. Sterling was little changed at $1.5898, and dropped 0.7 percent to 130.80 yen.

An index of executive and consumer sentiment in the euro area fell to 94.4 in March from a revised 94.5 in February, the European Commission said. A gauge of sentiment among manufacturers dropped to minus 7.2 from minus 5.7 in February, the report showed.

International Power

International Power’s board said it received an indicative proposal of 390 pence a share for the 30 percent not already owned by GDF. Shares in International Power jumped as much as 6 percent, the biggest gain since July 2010.

“In the past, if there were news regarding M&A, it was always something that was able to move the currency pair,” Commerzbank’s Park said.

The yield on the 10-year gilt declined one basis point to 2.2 percent. The 4 percent bond due March 2022 gained 0.13, or 1.30 pounds per 1,000-pound face amount, to 116.005.

Overseas investors cut their holdings of U.K. government bonds by 4.67 billion pounds last month as a rally in higher- yielding assets reduced demand for haven assets, according to data published today on the Bank of England’s website.

The sales compared with net purchases of 9.41 billion pounds in January. Overseas investors have been net sellers of gilts for the second time in three months.

Gilts’ Decline

Gilts handed investors a 1.8 percent loss this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Treasuries dropped 1.2 percent in the period.

U.K. house prices fell 0.9 percent in March from a year earlier, the first decline in six months, Nationwide said. U.K. banks granted fewer loans for homes than economists predicted in February, Bank of England data showed today.

“Disappointing Nationwide house-price data adds to the poor tone” for the pound, said Jane Foley, a senior currency strategist at Rabobank International in London. “We have been stripped of some of the confidence that we entered the New Year with, and we’ll have to see improved economic data to get that confidence back.”

The pound may weaken to 85 pence per euro by year-end, Foley said. Sterling will end 2012 at 83 pence per euro, according to a Bloomberg News survey of analysts.

The U.K. currency has gained 0.4 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro also gained 0.4 percent, and the dollar slid 2.1 percent.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

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


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