BLBG: Pound Drops From 10-Week High Versus Euro on Optimism ECB to Calm Markets
The pound dropped from near a 10-week high against the euro amid speculation the single currency’s slide was overdone and that European Central Bank policy makers may take steps to stem Europe’s sovereign-debt crisis.
Sterling also fell versus the dollar. The ECB today left its benchmark rate at 1 percent for a nineteenth month. Central bank President Jean-Claude Trichet, who speaks at a news conference in Frankfurt this afternoon, this week signalled investors are underestimating his institution’s determination to bolster financial stability. The pound rose versus the euro last month as investors sought a haven from euro-area assets.
“It’s more of a euro move against the pound because people are expecting something big out of the ECB today,” said Geoffrey Yu, a foreign-exchange strategist at UBS AG in London. “Markets have been caught short a bit on euros over the last couple of weeks or so and now there’s some retrenchment.”
The pound traded 0.5 percent lower at 84.52 pence per euro as of 12.51 p.m. in London, after touching the strongest since Sept. 20. It slipped 0.3 percent versus the dollar to $1.5584.
“I don’t believe that financial stability in the euro zone could really be called into question,” Trichet told lawmakers in Brussels on Nov. 30.
Increasing its bond purchases, or resorting to outright quantitative easing by failing to sterilize them, would see the ECB take more risk onto its balance sheet and open itself to the charge it’s financing profligate nations.
U.K. government bonds fell, pushing the 10-year yield up four basis points to 3.41 percent. The 4.75 percent security maturing March 2020 fell 0.36, or 3.6 pounds per 1,000-pound ($1,562) face amount, to 110.54. The two-year note yield rose three basis points to 1.02 percent.
German 10-year bunds also declined as demand declined for safest fixed-income assets. Spanish and Italian bonds rose for a second day.
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.
