BLBG:Pound Jumps Against Euro as Cyprus Turmoil Reignites Debt Crisis
The pound jumped to its strongest level in more than a month against the euro after the imposition of a levy on bank deposits in Cyprus threatened to throw Europe back into crisis, fueling demand for U.K. assets as a haven.
Sterling climbed by the most in five weeks against the currency shared by 17 European nations. Cypriot President Nicos Anastasiades bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.5 billion) by taking a piece of every bank account in the island nation. U.K. government bonds gained, pushing down 10-year yields to the lowest this year. House prices rose for a third consecutive month in March, Rightmove Plc said.
“This is basically a euro story and something that explains the move in sterling,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “Euro- sterling is a choice between a rock and a hard place.”
The pound advanced 1 percent to 85.69 pence against the euro at 11:38 a.m. London time, after jumping by as much as 1.4 percent to 85.31 pence, the strongest level since Feb. 11. Sterling was little changed at $1.5119.
The U.K. currency has gained 1.6 percent in the past week, the best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes amid speculation the Bank of England will boost its asset-purchase program to revive the economy. The central bank last increased the target in July, boosting it 50 billion pounds to 375 billion pounds.
The euro fell 0.8 percent and the dollar was little changed, in the period, while sterling has weakened 6.9 percent against the greenback.
Futures Bets
The yield on the 10-year gilt fell five basis points, or 0.05 percentage point, to 1.89 percent, after being as low as 1.86 percent, the least since Dec. 31. The 1.75 percent security maturing September 2022 gained 0.43 or 4.30 pounds per 1,000- pound face amount, to 98.82. Two-year gilt yields declined two basis points to 0.20 percent.
Futures traders increased their bets that sterling will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the pound compared with those on a gain, so-called net shorts, was 49,800 on March 12, the most since October 2011. That compared with net short positions of 43,849 a week earlier.
Morgan Stanley lowered its year-end forecast for the pound to $1.43 from $1.57, citing economic weakness that “has developed far more quickly than we had initially envisaged,” analysts led by Hans Redeker in London wrote in a note to clients today.
German bonds and U.S. Treasuries also rose as investors sought safer assets today. Italian and Spanish bonds slid and the euro weakened against all of its 16 major peers, slumping 1.2 percent versus the yen. Germany’s two-year note yields fell below zero for the first time in more than two months.
U.K. government bonds earned 0.2 percent this month through March 15, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net. NI FRX NI UK NI GLT NI MARKETS
