Pound Advances to Two-Month High Versus Euro on Cyprus Concern

The pound rose to the strongest level in two months against the euro amid concern financial turmoil in Cyprus will lead to a worsening of Europe’s debt crisis, underpinning demand for the safety of the U.K. currency.

Sterling advanced versus all except one of its 16 major counterparts as a government report showed Britain’s services industries expanded in January. The Central Bank of Cyprus is imposing capital controls including a 300-euro ($383) daily limit on withdrawals and restrictions on transfers to accounts outside the country to halt a capital flight. U.K. government bonds were little changed.

“It’s very much a flight to safety,” said Shant Movsesian, a foreign-exchange strategist at 4Cast Ltd. in London. “The U.K. is a safe haven for many. The bad news is already out there in the U.K. but clearly the cracks that are there in Europe are still to be seen.”

The pound gained 0.1 percent to 84.41 pence per euro at 10:38 a.m. London time after appreciating to 84.16 pence, the strongest level since Jan. 24. The U.K. currency gained 0.2 percent to $1.5153.

Cyprus’s banks were shut March 16 when the European Union presented a proposal to force losses on all depositors in exchange for a 10 billion-euro bailout. That plan touched off protests and political upheaval, and was rejected by the country’s parliament. A subsequent agreement imposed larger losses on uninsured depositors.

Services Expand

U.K. services, which account for about three quarters of the economy, rose 0.3 percent from December, when they dropped 0.4 percent, the Office for National Statistics said. That’s the biggest increase since August.

Sterling has gained 0.4 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro weakened 1.8 percent and the dollar climbed 0.5 percent.

The benchmark 10-year gilt yield was at 1.72 percent after falling to 1.71 percent, the lowest level since Nov. 13. The price of the 1.75 percent bond due September 2022 was 100.28.

U.K. government bonds returned 1 percent this quarter through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 0.5 percent, while U.S. Treasuries were little changed.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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