BLBG:Pound Strengthens as U.K. Regarded as a Refuge From Global Market Turmoil
The pound advanced against most of its 16 major peers tracked by Bloomberg as investors sought the relative safety of U.K. assets amid global financial turmoil sparked by the U.S.’s credit-rating downgrade.
Gilt yields approached record lows. Stocks slumped around the world and gold surged to a record as Standard & Poor’s downgrade of the U.S.’s AAA ranking roiled markets and boosted speculation the Federal Reserve may maintain stimulus measures. The pound pared gains versus the dollar after a report showed U.K. manufacturing unexpectedly fell in June and the trade gap widened, adding to evidence the economy is faltering.
“The U.K. is still seen as a safe haven in an uncertain world and that’s benefiting sterling,” said Shant Movsesian, a strategist in London at 4Cast Ltd., a research company that counts central banks among its subscribers. “The coalition government has taken the unpleasant but necessary step of cutting spending aggressively, in stark contrast to Europe where austerity measures have been much more gradual.”
Sterling strengthened 0.4 percent to $1.6387 at 10:47 a.m. in London. The pound was 0.3 percent weaker at 87.15 pence per euro, after reaching 86.43 pence on Aug. 5, the strongest since May 27. Britain’s currency lost 0.5 percent to 126.24 yen.
Benchmark gilt yields have slumped 87 basis points this year as investors favored the relative safety of U.K. government debt amid a worsening euro-region debt crisis. Yields on the securities have also fallen as the biggest government spending cuts since World War II reduced prospects for economic growth, boosting speculation the Bank of England will keep its main interest rate at a record low 0.5 percent.
‘Attractive Havens’
“Gilts are still a very attractive safe-haven asset,” said John Wraith, a fixed-income strategist at Bank of America Corp.’s Merrill Lynch unit in London. “There’s a lot of risk aversion out there and the growth outlook is slowing, all of which favors gilts.”
Gilts fluctuated before settling little changed, leaving the yield on the 10-year security at 2.64 percent, after reaching a record low 2.59 percent on Aug. 5. Two-year note yields were two basis points lower at 0.57 percent.
U.K. factory output declined 0.4 percent in June from the previous month, when it rose 1.8 percent, the Office for National Statistics said today in London. The median forecast of 24 economists in a Bloomberg News survey was for a 0.2 percent gain. The goods trade gap widened as a decline in exports outpaced a fall in imports.
House-price declines in the U.K. eased in July, while a measure of London home values jumped to its highest in more than a year, the Royal Institution of Chartered Surveyors said in a separate report.
To contact the reporter on this story: Garth Theunissen in London at gtheunissen@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
