Bloomberg News

Pound Snaps 4-Day Gain Versus Euro as Greece Exit Concern Eases

May 28, 2012

The pound snapped a four-day advance against the euro as Greek polls showed greater support for parties supporting the country’s bailout plan, damping demand for U.K. assets as a refuge.

Sterling declined against 13 of its 16 major counterparts before U.K. reports this week that economists said will show consumer confidence worsened and manufacturing contracted, adding to signs the economy is faltering. Ten-year gilt yields rose from within a basis point of a record low.

“We’ve seen the pound post steady gains and now there’s a bit of a reality check,” said Gavin Friend, a markets strategist at National Australia Bank Ltd. (NAB) in London. “Looking forward, some of the data is expected to show that the second quarter isn’t off to a great start. In the short-term, the moves have been so large and now we are pausing a bit.”

The pound was little changed at 79.96 pence per euro at 4:43 p.m. London time after rising 1.3 percent over the previous four days. Sterling was also little changed at $1.5682. It dropped to $1.5631 on May 24, the weakest since March 13.

The pound surged to the strongest since November 2008 against the euro on May 16 as a political impasse in Greece boosted speculation the nation will exit the currency bloc. The New Democracy party placed first in all six opinion polls published on May 26 before the general election on June 17, damping concern that politicians opposing the terms of the nation’s international aid would gain further ground.

Elsewhere in Europe, Spain’s Bankia SA (BKIA) lost about a quarter of its market value and the country’s bonds tumbled.

‘Positive Headlines’

“Sterling is trying to figure out which way to go against the euro because while there are some more positive headlines about Greece, there’s also the Bankia news,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London.

The euro-area debt crisis will weigh on Britain’s property market, Hometrack Ltd. said today, as it reported that U.K. house prices rose for a third month in May.

An index of U.K. consumer confidence fell to minus 32 in May from minus 31 in April, economists forecast before a report published by GfK NOP Ltd. on May 31. A U.K. manufacturing index published on June 1 will show output shrank for the first time since December, according to a separate survey.

Gilts Decline

The yield on the 10-year gilt climbed was little changed at 1.76 percent. The 4 percent bond due in March 2022 dropped 0.04, or 40 pence per 1,000-pound face amount, to 120.06. The yield earlier declined to 1.74 percent, within a basis point of the record 1.738 percent set on May 24.

Two-, five and 10-year gilt yields fell to all-time lows last week amid speculation the Bank of England would resume its program of asset purchases to spur growth. Central bank Chief Economist Spencer Dale said in a Sunday Times interview that while the 325 billion-pound program of quantitative easing has had a “considerable impact” in stabilizing the economy, its ability to provide aid has limits.

“Some people say we can just pump more into the economy with QE, but if weak growth reflects problems on the supply side of the economy, that may not be appropriate,” Dale was cited by the newspaper as saying.

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

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


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