The pound approached a one-month high against the euro before Italian Prime Minister Silvio Berlusconi faces a parliamentary vote that will test his leadership, boosting the appeal of British assets as a haven.
Sterling rose for a second day versus the dollar. Today’s vote will show whether the Italian leader has enough support to stay in power and implement austerity measures to trim the region’s second-biggest debt load. Britain’s currency stayed higher as a report showed U.K. manufacturing expanded in September more than economists predicted.
“The pound is benefiting from being a safe haven from the fact that it isn’t part of the euro monetary union,” said Shant Movsesian, a strategist in London at 4Cast Ltd. in London. “The economic downturn is very much expected and has been largely priced in, so when you get an upturn in data it is seen as welcome relief.”
The pound gained 0.2 percent to 85.66 pence per euro at 10:20 a.m. London time. The British currency appreciated to 85.48 pence on Nov. 1, the strongest level since Oct. 4. Sterling was 0.2 percent stronger at $1.6089.
The U.K. currency gained 0.6 percent in the past week, according to Bloomberg Correlation-Weighted Indexes, which track the currencies of 10 developed nations.
Factory output in the U.K. increased 0.2 percent from the previous month, when it fell 0.3 percent, the Office for National Statistics said today in London. The median forecast of 30 economists in a Bloomberg News survey was for a 0.1 percent gain.
U.K. government bonds fell, with the 10-year gilt yield three basis points, or 0.03 percentage point, higher at 2.30 percent. The 3.75 percent bond due September 2021 fell 0.320, or 3.20 pounds per 1,000-pound face amount, to 112.710. Two-year yields rose one basis point to 0.53 percent.
U.K. 10-year bonds yielded 433 basis points less than their Italian counterparts today, after the spread widened to the most since before the introduction of the euro in 1999, based on Bloomberg generic closing prices. The British securities yielded 333 basis points less than their Spanish counterparts.
U.K. gilts have returned 14 percent this year, indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies show. German bunds rose 8.7 percent and Italian securities lost 8.2 percent.