BS: Pound Declines Amid Concern Over Contagion From Irish Crisis
Nov. 12 (Bloomberg) -- The pound fell versus the euro for the first day in seven amid concern that Ireland’s debt crisis may spill over into Britain’s financial institutions.
Sterling also fell versus the dollar, snapping two days of gains. A majority of global investors predict Ireland will default on its sovereign debt, a Bloomberg poll published today shows. Group of 20 leaders meeting in Seoul discussed Ireland’s debt crisis, which has weakened the euro on concern the European Union will need to step in with a bailout. Shares of Royal Bank of Scotland Group Plc, the U.K.-controlled lender that owns Ireland’s Ulster Bank, reached a four-month low yesterday.
“There’s the contagion fear if Ireland is going to continue into a negative tailspin,” said Jeremy Stretch, executive director of foreign-exchange strategy in London at Canadian Imperial Bank of Commerce. “That could bring front and center the two largest U.K. state-owned banks, who probably have some significant exposure.”
The pound declined 0.6 percent against the euro to 85.30 pence. It also fell 0.4 percent to 1.6055 at 12:01 p.m. in London, paring two days of gains.
“The U.K. is number one in terms of Irish exposure, so there definitely is a risk there,” said Derek Halpenny, head of European currency strategy at Bank of Tokyo-Mitsubishi UFJ in London. “The greatest concern must be that we haven’t really hit bottom yet.”
The pound fell against 10 of its 16 most actively traded peers. It has declined 3.5 percent against a basket of currencies in 2010, according to Bloomberg Correlation-Weighted Currency Indexes.
U.K. government bonds were little changed, with the 10-year yield at 3.17 percent and the two-year note yield at 1.04 percent. The Treasury today sold 3 billion ($4.8 billion) of 28, 91 and 182-day gilt bills, according to the U.K. Debt Management Office.
--With assistance from Svenja O’Donnell in London and David Lynch in Washington. Editors: Keith Campbell, Matthew Brown.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
