BLBG:Pound Drops Versus Euro As Greek Pro-Bailout Party Gains Support
The pound weakened for the first time in five days against the euro as Greek polls showed greater support for the pro-bailout New Democracy party before elections next month, damping demand for U.K. assets as a refuge.
Sterling fell against all except three of its 16 major counterparts before U.K. reports this week that economists said will show consumer confidence worsened and manufacturing contracted, adding to signs the economy is faltering. Britain’s currency also dropped versus the euro amid speculation its 5.5 percent advance in the past three months was too rapid. Gilts were little changed.
“We’ve seen the pound post steady gains and now there’s a bit of a reality check,” said Gavin Friend, a markets strategist at National Australia Bank Ltd. in London. “Looking forward, some of the data is expected to show that the second quarter isn’t off to a great start. In the short-term, the moves have been so large and now we are pausing a bit.”
The U.K. currency depreciated 0.3 percent to 80.19 pence per euro at 11:02 a.m. London time after rising 1.3 percent over the previous four days. Sterling gained 0.2 percent to $1.5704, after falling to $1.5631 on May 24, the weakest since March 13.
The pound surged to the strongest since November 2008 against the euro on May 16 as a political impasse in Greece boosted speculation the nation will exit the currency bloc. The New Democracy party placed first in all six opinion polls published on May 26 before the general election on June 17, damping concern that politicians opposing the terms of the nation’s international aid would gain further ground.
Elsewhere in Europe, Spain’s Bankia SA lost about a quarter of its market value and the country’s bonds tumbled.
‘Positive Headlines’
“Sterling is trying to figure out which way to go against the euro because while there are some more positive headlines about Greece, there’s also the Bankia news,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London.
The euro-area debt crisis will weigh on Britain’s property market, Hometrack Ltd. said today, as it reported that U.K. house prices rose for a third month in May.
An index of U.K. consumer confidence fell to minus 32 in May from minus 31 in April, economists forecast before a report published by GfK NOP Ltd. on May 31. A U.K. manufacturing index published on June 1 will show output shrank for the first time since December, a separate survey showed.
U.K. Gilts
The yield on the U.K. 10-year gilt climbed one basis point, or 0.01 percentage point, to 1.77 percent. The 4 percent bond due in March 2022 dropped 0.145, or 1.45 pounds per 1,000-pound face amount, to 119.955.
Two-, five and 10-year gilt yields fell to records last week amid speculation the Bank of England would resume its program of asset purchases to spur growth. Central bank Chief Economist Spencer Dale said in a Sunday Times interview that while the 325 billion-pound program of quantitative easing has had a “considerable impact” in stabilizing the economy, its ability to provide aid has limits.
“A feature of the past two to three years has been weak growth in supply, which we see in the productivity figures,” Dale told the newspaper. “Some people say we can just pump more into the economy with QE, but if weak growth reflects problems on the supply side of the economy, that may not be appropriate.”
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net
