The pound fell against the euro as a report showed the number of Britons filing jobless-benefit claims increased at the fastest pace in more than two years, fueling concern that the economic recovery is stalling. Sterling snapped three days of gains versus the 17-nation currency and pared its gains against the dollar. Jobless claims rose by 24,500 last month, the biggest increase since May 2009, the Office for National Statistics said today in London. The median forecast of 21 economists in a Bloomberg News Survey was for a gain of 15,000. “The overall theme is that we are going through a lean period where unemployment is going to stay relatively high,” said Shant Movsesian, a strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “Sterling will take a hit on broader risk aversion and its own local problems.” The pound weakened 0.5 percent to 88.25 pence per euro as of 12:20 p.m. in London, halting gains that pushed it yesterday to the strongest level since June 16. It was 0.2 percent stronger at $1.5941. It weakened yesterday to $1.5781 yesterday, the lowest level since Jan. 26. Sterling was 0.2 percent weaker against nine developed market peers tracked by Bloomberg Correlation-Weighted Currency Indexes. It has dropped 6.6 percent in the past year, the second biggest decline after the dollar. U.K. government bonds fell, with the 10-year yield rising two basis points to 3.11 percent. The yield fell to 2.93 percent yesterday, the least since October 26. The two-year gilt yield advanced two basis points to 0.72 percent. Interest-Rate Bets The pound declined and gilts rose this year amid speculation that slowing economic growth will limit the Bank of England’s ability to raise rates, while the Federal Reserve ends its bond-purchase stimulus program and the European Central Bank tightens monetary policy. Reports yesterday showed inflation unexpectedly slowed and retail sales slid in June, prompting investors to reduce bets that the bank of England will increase interest rates from a record low, even as inflation runs at more than twice its 2 percent target. Consumer prices rose 4.2 percent from a year earlier, the Statistics office said. Inflation “should fall back towards the target during the next two years,” Bank of England Governor Mervyn King wrote in a foreword to the central bank’s annual report released in London on July 11. The British economy probably grew just 0.1 percent in the second quarter from the previous three months, the National Institute for Economic and Social Research said last week. ‘Bearishness Peaked’ “The degree of bearishness on the U.K. has somewhat peaked a little bit,” said Sebastien Galy, a senior currency strategist at Societe Generale in London. “People have underestimated the propensity of the dollar to weaken.” Gilts have returned investors 1.9 percent since the end of June, compared with a 3.8 percent decline by Italian bonds, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. Spanish bonds have handed investors a 2 percent loss, the indexes show. Short-sterling futures rose today, pushing the implied yield on the September futures contract down two basis points to 0.90 percent, a sign that investors are reducing wagers on higher borrowing costs. To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

Source