Bloomberg News

Pound Strengthens Versus Majority of Peers on Inflation, Greece

November 13, 2012

The pound strengthened versus most of its major counterparts after a U.K. report showed inflation accelerated in October more than analysts forecast and amid concern the Greek debt crisis is worsening.

Sterling gained the most against Brazil’s real and South Africa’s rand as a gauge of British house prices showed the best result in two years, adding to signs the economy is recovering. European finance ministers meeting yesterday left unanswered how they will fill a shortfall in Greece’s balance sheet. Gilts were little changed before the Bank of England publishes its latest growth and inflation projections tomorrow.

“The pound is being supported by a combination of improvement in the economic outlook and the uncertainty about Greece,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “There is still a big question mark about Greece’s debt sustainability.”

The pound was little changed at 80.05 pence per euro at 4:58 p.m. London time after appreciating as much as 0.4 percent to 79.70 pence. The U.K. currency reached 79.61 pence on Nov. 8, the strongest level since Oct. 1. Sterling rose less than 0.1 percent to $1.5886, after falling earlier to $1.5858, the weakest since Sept. 5.

U.K. consumer prices climbed 2.7 percent last month from a year earlier, the most since May, compared with a near three- year low of 2.2 percent in September, the Office for National Statistics said in London. Inflation was forecast to quicken to 2.4 percent, according to a Bloomberg News survey.

House Prices

An index of U.K. house prices rose to minus 7 in October from minus 14 in September, London-based Royal Institution of Chartered Surveyors said in an e-mailed report, citing a monthly poll of property surveyors. A result below zero means more of them saw values decline than increase last month.

In the latest compromise in three years of crisis fighting, creditors led by Germany opted yesterday to keep money flowing to Greece instead of risking a default that may lead to the nation’s exit from the euro and stir more turmoil for the countries that remain in the single-currency bloc.

Prospects of a funding deal at a Nov. 20 meeting are clouded by objections from the International Monetary Fund, which took issue with the ministers’ decision to postpone the goal of getting Greece’s debt down to a “sustainable” level of 120 percent of gross domestic product by two years to 2022.

‘Still Concerned’

“Despite the reprieve from the finance ministers, the market is still concerned about potential Greek default,” said Soeren Moerch, head of government-bond trading at Danske Bank S/A in Copenhagen. “Demand for safe assets should be underpinned.”

The pound has gained 1.2 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro weakened 3.3 percent and the dollar dropped 1.2 percent.

The benchmark 10-year gilt yield dropped less than one basis point, or 0.01 percentage point, to 1.71 percent. The rate fell to 1.67 percent on Nov. 9, the lowest level since Sept. 10. The 1.75 percent bond maturing in September 2022 rose 0.065, or 65 pence per 1,000-pound face amount, to 100.355.

The five-year U.K. break-even rate, a gauge of inflation expectations derived from the difference in yields between conventional and index-linked gilts, widened for the first time in eight days. The rate increased six basis points to 2.12 percentage points.

Gilts returned 3.4 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bonds gained 4.1 percent and U.S. Treasuries rose 2.7 percent.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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