The pound weakened against the dollar, touching its lowest level in more than four months, and gilts rose amid speculation the fallout from Europe’s debt crisis is spreading and will harm the U.K.’s economic outlook.
Britain’s currency slid for a fourth day against the yen after Nick Moon, GfK NOP Ltd. Social Research managing director, said “consumer confidence remains mired” even as the company’s sentiment gauge rose. Sterling slid snapped a two-day gain against the euro on bets its advance was overdone. House prices climbed in May for the first time in three months, another report showed. The 10-year gilt yield fell to an all-time low.
“The down movement in the pound is to do with risk- aversion tied to the euro region,” said Peter Frank, a London- based currency strategist at Banco Bilbao Vizcaya Argentaria SA. (BBVA) “People are buying dollar and yen because of the turmoil in Europe and the pound is getting dragged down. Gilt yields are dropping sharply because they are a haven.”
Sterling was 0.5 percent weaker at $1.5408 at 5:07 p.m. London time, after falling to $1.5361, the least since Jan 18. The pound was 1.4 percent lower at 120.66 yen, after declining 2 percent in the previous three days.
The U.K. currency weakened 0.4 percent to 80.24 pence per euro. It has gained 1.6 percent this month against the 17-nation currency, even as it reaching 79.51 pence on May 16, the strongest since November 2008.
Italy’s Prime Minister Mario Monti and central bank chief Ignazio Visco today pressed Germany to back more aggressive efforts to contain the region’s debt crisis, setting up a north- south rivalry over how to stabilize the euro-area economy.
Concern that policy makers will struggle to shield the U.K. economy from the fallout from Europe’s debt crisis weighed on the pound, trimming a year-to-date gain of more than 4 percent versus the euro. Britain slid into its first double-dip recession since the 1970s in the first quarter amid the euro area’s turmoil and Prime Minister David Cameron’s commitment to the biggest fiscal squeeze since World War II.
“People are taking the opportunity to buy some euros after the pound’s recent strength,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “U.K. consumer confidence was still a poor figure, even though it rose, and the house-price data wasn’t fantastic.”
Ten-year gilts rose, driving the yield eight basis points lower to 1.57 percent after touching 1.563 percent. The 4 percent security due March 2022 rose 0.775, or 7.75 pounds per 1,000-pound face amount, to 121.915. The two-year rate dropped three basis points to 0.23 percent.
An index of U.K. consumer sentiment gained 2 points from April to minus 29, GfK said today. The gauge is down from minus 21 a year earlier. A measure of the climate for shoppers making major purchases dropped 2 points to a seven-month low of minus 32, the data showed.
“Even though optimism about how the economy will perform” has improved, “it is still significantly down on where it was this time last year,” Moon said.
Gilts have returned 3.7 percent this month through yesterday, compared with 2.9 percent in May for German bonds and 1.6 percent for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
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