BLBG:Pound Weakens as German Growth Beats Forecasts; Gilts Decline
The pound weakened from a 3 1/2-year high against the euro after growth in Germany helped the economy of the 17-nation European region avoid a recession, damping demand for the safety of U.K. assets.
Gilts dropped for the first time in three days as the expansion in German gross domestic product offset declines in the euro-area’s peripheral economies. U.K. government securities also fell as the nation sold 2.75 billion pounds ($4.41 billion) of bonds maturing in 2025. The pound weakened versus all except one of its 16 major counterparts as a U.K. report showed the trade deficit narrowed less in March than economists forecast.
“German GDP is a cracking figure, much better than anticipated,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. The growth report is “certainly helping” the euro against the pound, he said.
Sterling fell 0.5 percent to 80.10 pence per euro at 11:48 a.m. London time after rising to 79.63 pence yesterday, the strongest level since November 2008. The U.K. currency depreciated 0.3 percent to $1.6049. It earlier dropped to $1.6041, the lowest since April 20.
Germany’s gross domestic product grew 0.5 percent last quarter from the previous three months, when it fell 0.2 percent, the Federal Statistics Office said in Wiesbaden. GDP in the euro region stagnated, the European Union’s statistics office in Luxembourg said. The median forecast of economists surveyed by Bloomberg was for a 0.2 percent contraction.
Gilts Fall
The yield on the 10-year gilt climbed four basis points, or 0.04 percentage point, to 1.92 percent after declining to a record 1.86 percent yesterday. The 4 percent bond due in March 2022 dropped 0.38, or 3.80 pounds per 1,000-pound face amount, to 118.56.
The U.K. sold the 5 percent bonds due in March 2025 at an average yield of 2.251 percent, compared with 2.222 percent at the previous auction of the securities on April 3.
The U.K. trade deficit shrank to 8.56 billion pounds in March from a revised 8.59 billion pounds in February, the Office for National Statistics said. Economists surveyed by Bloomberg News forecast a reduction to 8.4 billion pounds.
Gilts have gained 0.4 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries rose 1.1 percent, and German bunds returned 2.7 percent.
Sterling has appreciated 3.6 percent in 2012, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar was little changed, and the euro fell 0.9 percent.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net;
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net
