June 17 (Bloomberg) -- The pound dropped by the most in more than a week against the euro as stocks retreated and minutes showed Bank of England policy makers voted unanimously to continue their asset-purchasing program.
The British currency also slid versus the dollar after a government report showed claims for U.K. jobless benefits rose for a third month in May. The minutes of the central bank’s June 4 meeting showed policy makers decided it was too early to know if the measures designed to lower borrowing costs were working. The FTSE 100 Index fell to its lowest level since May 5.
“Stocks have been pummeled today as we shift toward a more risk-averse mentality and that’s conspiring to hit sterling,” said Jeremy Stretch, a senior currency strategist in London at Rabobank International. “The pound never does well in this sort of environment.”
The pound weakened 1.1 percent to 85.22 pence per euro by 12:38 p.m. in London, its steepest intraday decline since June 5. It depreciated 0.9 percent to $1.6265.
Claims for jobless benefits rose 39,300 to 1.54 million in May, the Office for National Statistics said today. A broader measure of U.K. unemployment climbed 232,000 to 2.26 million in the three months through April, the statistics office said. The Confederation of British Industry expects the jobless total to peak in the second quarter of 2010 at 3.03 million.
Economic Outlook
Any scaling back of the Bank of England’s emergency asset- purchase measures may be slow on concern the recession has further to run. The U.K. government expects the economy to shrink 3.5 percent in 2009, and forecasters including the International Monetary Fund are more pessimistic. The CBI this week predicted no growth until next year.
Gilts gained as stock losses stoked demand for fixed-income assets, pushing the yield on the 10-year bond down seven basis points to 3.83 percent. The 4.50 percent security due March 2019 rose 0.54, or 5.4 pounds per 1,000-pound ($1,386) face amount, to 105.39. The two-year gilt yield slipped six basis points to 1.35 percent. Bond yields move inversely to prices.
U.K. government bonds lost 0.8 percent this month, compared with a gain of 0.1 percent for German securities, according to Merrill Lynch & Co.’s U.K. Gilts and German Federal Governments indexes.
