BLBG:Pound Advances To Highest This Month Against Euro; Gilts Decline
The pound climbed to the strongest this month against the euro amid speculation European Union leaders meeting this week will fail to agree on measures to stop the debt crisis from spreading.
Sterling advanced for a second day versus the single currency as Italian and Spanish borrowing costs surged at debt auctions, boosting demand for the U.K. currency as a haven. Gilts fell as a government report showed Britain had a larger budget deficit in May than economists forecast. The U.K. sold 1.25 billion pounds ($1.96 billion) of inflation-linked debt.
“We have the EU summit, which I think is most likely to be taken by the market in a disappointing fashion,” said Steven Barrow, head of Group-of-10 research at Standard Bank Plc in London. “Euro-sterling is going to go down,” he said, meaning the pound will appreciate against the 17-member currency.
The pound rose 0.5 percent to 79.90 pence per euro at 12:12 p.m. London time after reaching 79.87 pence, the strongest level since May 30. The U.K. currency gained 0.4 percent to $1.5636. It fell to $1.5539 yesterday, the weakest since June 15.
EU leaders gather in Brussels for two days of talks starting June 28, the 19th meeting since the debt crisis broke out in early 2010. Spain sold three-month bills at a yield of 2.36 percent today, compared with 0.85 percent at the previous auction. Italy sold zero-coupon debt due in 2014 at a yield of 4.71 percent, versus 4.04 percent on May 28.
Pound Gains
The pound has strengthened 2 percent this year, according to Bloomberg Correlation-Weighted Indexes, as investors sought safety from Europe’s debt crisis. Only New Zealand’s dollar rose more among the 10 developed-market currencies. The euro dropped 2.7 percent, the indexes show.
The yield on the 10-year gilt rose the most in a week after the Office for National Statistics said the budget shortfall was 17.9 billion pounds in May, compared with 15.2 billion pounds a year earlier. Economists forecast a deficit of 14.8 billion pounds, according to the median estimate in a Bloomberg survey.
The 10-year gilt yield climbed five basis points, or 0.05 percentage point, to 1.72 percent after rising as much as six basis points, the most since June 19.
Bank of England Governor Mervyn King told lawmakers today his vote for more stimulus this month reflected his concern the global economic outlook is deteriorating.
“What’s concerned me in the last several months, and why I voted for easing in policy, is the worsening in the position in Asia and other emerging markets,” King said. Another reason is that “my colleagues in the U.S. are more concerned than they were at the beginning of the year about what’s happening in the American economy.”
U.K. government debt has returned 3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 2.9 percent, and U.S. Treasuries rose 2 percent.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net
