The pound reached a three-month high against the euro as Italian borrowing costs increased at a debt sale, underpinning the appeal of U.K. assets as a haven from the European debt crisis.
Sterling strengthened for a second day against the dollar and the yen even after a U.K. report showed the trade deficit widened in February more than economists predicted. Italy sold securities due in 2015 at an average yield of 3.89 percent, up from 2.76 percent at the previous auction last month. Gilts declined as demand slipped at an auction of 20-year bonds.
“Sterling is considered a safe haven compared to the euro as it’s in a better position,” said Jennifer Hau, a foreign-exchange strategist at Lloyds Banking Group Plc in London. “From a European perspective it’s probably the most attractive place to invest, which is helping euro-sterling grind lower.”
The pound appreciated 0.1 percent to 82.36 pence per euro at 12:03 p.m. London time after advancing to 82.27 pence, the strongest level since Jan. 9. The U.K. currency gained 0.3 percent to $1.5959, and rose 0.5 percent to 129.22 yen.
Sterling has strengthened 2.2 percent over the past month, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro weakened 0.1 percent, and the dollar was little changed.
Italy sold 2.88 billion euros ($3.78 billion) of three-year notes, less than its maximum target of 3 billion euros. The Rome-based Treasury also sold 2 billion euros of bonds due in 2015, 2020 and 2023. The total of 4.88 billion euros fell short of its target of 5 billion euros.
The U.K. trade deficit widened to 8.77 billion pounds from a revised 7.88 billion pounds in January, the Office for National Statistics said. Economists surveyed by Bloomberg predicted a shortfall of 7.65 billion pounds.
The yield on the benchmark 10-year gilt rose three basis points, or 0.03 percentage point, to 2.08 percent. The 4 percent bond due in March 2022 dropped 0.28, or 2.80 pounds per 1,000-pound face amount, to 117.09.
Britain’s sale of 20-year bonds attracted bids for 1.39 times the amount on offer, down from a so-called bid-to-cover ratio of 1.63 times at the previous auction. The country is due to sell 3.5 billion pounds of bills tomorrow.
The yield on the 4.25 percent bonds maturing in June 2032 increased four basis points to 3.05 percent.
“It might just be that there’s limited demand at the low yields, and nothing particularly more worrying than that,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London.
The euro may decline to the lowest in almost two years against the pound, after failing to rise above a key level of resistance, according to Credit Suisse Group AG.
Europe’s shared currency is poised to decline to 81.41 pence over the next month after being unable to strengthen above 82.87 pence this week, Steve Miley, London-based head of foreign-exchange technical analysis, wrote in a note today.
An “inability to push above here highlights inherent market weakness,” Miley wrote. “With the 21-day moving average at 83.12 pence bearing down, the risks into April are firmly seen lower.”