BS: Pound Advances to Two-Week High Versus Euro Amid Spain Concern
The pound rose to a two-week high against the euro as concern that Spain will refrain from requesting outside aid to help fix its debt crisis boosted demand for the U.K. currency as a haven.
Sterling strengthened for a second day versus the 17-nation shared currency after an industry report showed U.K. mortgage approvals climbed in August. Spanish borrowing costs rose as the nation sold bills and Deputy Prime Minister Soraya Saenz de Santamaria said the government needed to know how much the European Central Bank will spend on bond purchases before it can take a decision on seeking external help. Gilts gained.
“Markets are nervous that Spain won’t request a bailout,” said Steven Barrow, head of Group of 10 research at Standard Bank Plc in London. “Most of the indicators I look at for the short-term direction of sterling, except for against the dollar, look reasonably OK.”
The pound appreciated 0.1 percent to 79.65 pence per euro at 1:17 p.m. London time after climbing to 79.37 pence, the strongest level since Sept. 7. The U.K. currency rose 0.1 percent to $1.6238.
Sterling may climb to 75 pence per euro in 12 months and reach 70 pence in around two years, Standard Bank’s Barrow said.
Spain sold three-month bills at a yield of 1.203 percent today, up from 0.946 percent at the previous auction on Aug. 28. The nation sold six-month securities at 2.213 percent, versus 2.026 percent. Demand for the three-month bills dropped to 3.29 times the amount allotted, from 3.35 times in August.
‘Many Fronts’
“There are many fronts we have to tackle,” Saenz told radio station Cadena Ser. “We need to know to what extent the ECB will intervene in the secondary market. To take decisions you need to have all the elements on the table.”
The pound has strengthened 2 percent this year while the euro tumbled 3.1 percent, according to Bloomberg Correlation- Weighted Indexes, which track 10 developed-market currencies.
Bank of England Markets Director Paul Fisher said “all bets are off” on the outlook for the U.K. economy in the event of a disintegration of the euro area. He spoke in response to audience questions at a speech in London.
U.K. mortgage approvals increased to 30,533 last month from 28,750 in July, the British Bankers Association said.
The Bank of England said the nation’s lenders may be able to borrow an initial 61 billion pounds under its plan to boost credit to companies and households. The so-called Funding for Lending Scheme is the latest in a series of measures to help the economy fend off contagion from the European debt crisis.
Gilts Gain
The 10-year gilt yield fell one basis point, or 0.01 percentage point, to 1.80 percent after dropping to 1.77 percent, the lowest level since Sept. 12. The 1.75 percent bond maturing in September 2022 gained 0.1, or 1 pound per 1,000- pound face amount, to 99.52.
Gilts returned 2.5 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 2.6 percent and U.S. Treasuries rose 1.9 percent.
The U.K. sold 4 billion pounds of inflation-linked bonds maturing in March 2052 at an equivalent real yield of 0.357 percent, the Debt Management Office said in a statement.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
