The pound approached its strongest level in more than a month against the euro as speculation that European leaders are failing to deal with the sovereign-debt crisis boosted demand for British assets as a haven.
Sterling added to its biggest weekly gain versus the 17-nation currency since January. Greek Prime Minister George Papandreou agreed to step down to allow the creation of a unity government and Italy’s borrowing costs climbed to a euro-era record as Prime Minister Silvio Berlusconi’s struggled to hold on to power before a parliamentary vote tomorrow.
“Euro-sterling is trading on a downtrend and has further to go,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “The performance of sterling is quite a barometer of how foreign-exchange markets are perceiving euro-land issues at the moment.”
The pound gained 0.3 percent to 85.80 pence per euro as of 4.54 p.m. London time, after earlier strengthening to 85.59 pence. It rose 2 percent last week, the biggest increase since the five days through Jan. 7, when it strengthened 3.2 percent. Sterling weakened 0.1 percent to $1.6023.
The U.K. currency gained 0.3 percent in the past week, according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations.
Sterling gained versus the euro even as Lloyds Bank Corporate Markets said confidence in the outlook for employment fell for a third straight month in September.
A gauge of consumer sentiment toward hiring prospects fell for a fourth month in October, declining five points to minus 72 from September, the unit of Lloyds Banking Group Plc said in London today. A measure of job security fell two points to minus 23.
Ten-year gilt yields were four basis points, or 0.04 percentage point, lower at 2.27 percent. The yields fell on Nov. 1 to 2.17 percent, the lowest since Bloomberg started collecting the data. The 3.75 percent bond due September 2021 advanced 0.335, or 3.35 pounds per 1,000-pound face amount, to 112.955.
Gilts pared gains after Il Foglio reported that Berlusconi may step down within “hours” and as the European Central Bank was said to be buying the nation’s securities. The rumor was denied, according to Ansa, citing the premier.
U.K. 10-year bonds yielded 439 basis points less than their Italian counterparts today, the most since before the introduction of the euro in 1999, based on Bloomberg generic closing prices. The British securities yielded 336 basis points less than their Spanish counterparts.
U.K. gilts have returned 13 percent this year, indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies show. German bunds rose 8.3 percent and Italian securities lost 6.4 percent.