Pound Advances After Report Shows U.K. Retail Sales Rebounded; Gilts Fall

The pound strengthened versus most of its major counterparts after a government report showed U.K. retail sales rebounded in December, spurring demand for the nation’s currency.

Sterling rose the most in week against the euro as Greek officials and private creditors struggled to reach an agreement on a proposed debt swap, damping optimism the sovereign debt crisis is being contained. Longer-maturity gilts fell for a third day before the Debt Management Office sells a 3.75 percent bond maturing in 2052 through banks next week.

“The pound is resilient and we think it may have further room to rise against the euro,” said Adam Cole, head of currency strategy at RBC Capital Markets in London. “Policy makers here seem to be working with one another rather than against each other, and that’s positive for the economy.”

The U.K. currency rose 0.6 percent to 83.24 pence per euro at 4:04 p.m. London time after gaining as much as 0.7 percent, the most since Jan. 13. The pound appreciated 0.2 percent to $1.5523, and gained 0.3 percent to 119.76 yen.

U.K. retail sales including fuel increased 0.6 percent from November, when they fell a revised 0.5 percent, the Office for National Statistics said today in London. From a year earlier, sales climbed 2.6 percent.

The 10-year break-even rate, a gauge of inflation expectations derived from the yield difference between regular and index-linked bonds, rose three basis points to 2.74 percentage points, the highest level since Jan. 11.

Greece Talks

The pound gained for the first time in four days versus the euro as concern Greece will fail to reach agreement with its creditors sapped demand for the 17-nation currency.

Greek officials will resume talks with private creditors this evening in Athens on the details of a debt swap deal that’s crucial to lowering the country’s borrowings and securing a second round of international aid.

The yield on the benchmark 10-year gilt climbed six basis points to 2.12 percent after reaching 2.14 percent, the highest since Dec. 15. The 3.75 percent bond due September 2021 fell 0.615, or 5.15 pounds per 1,000-pound face amount, to 114.15.

The 30-year yield increased seven basis points, or 0.07 percentage point, to 3.11 percent.

Barclays Capital, Credit Suisse Group AG, HSBC Holdings Plc and Morgan Stanley were hired to manage the sale of 40-year bonds next week, a banker involved in the offering said Jan. 12.

Gilts underperformed bunds for a third day, with the extra yield investors demand to hold 10-year U.K. debt instead of similar-maturity German securities widening one basis point to 20 basis points.

Gilts handed investors a 0.1 percent loss this year, according to indexes compiled by the European Federation of Financial Analysts Societies. German bonds dropped 0.2 and Treasuries fell 0.4 percent.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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