May 15 (Bloomberg) -- The pound strengthened to a 3 1/2-year high against the euro as Greek political party leaders meeting in Athens today failed to form a government, meaning new elections will be needed.
Gilts snapped a two-day advance after growth in Germany helped the economy of the 17-nation currency bloc avoid joining Britain in a double-dip recession. Sterling weakened against the dollar as a U.K. report showed the trade deficit narrowed less in March than economists forecast.
“Once again sterling is looking likely to close on the day higher against the euro,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “The sustained bout of sterling pressure against the euro has been fairly incessant over the past six weeks and looks likely to continue until euro-zone woes quieten down or the pound runs out of steam.”
The pound was little changed at 79.68 pence per euro at 5:03 p.m. London time after appreciating 0.1 percent to 79.60 pence, the strongest level since November 2008. The U.K. currency declined 0.4 percent to $1.6022. It earlier dropped to $1.6011, the lowest level since April 19.
Sterling has appreciated 4.1 percent in 2012, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as Europe’s sovereign debt crisis spurred demand for U.K. assets as a haven. The dollar gained 0.6 percent and the euro fell 1.1 percent.
Greece “is once again headed to elections in a few days under adverse conditions,” Evangelos Venizelos, the leader of the socialist Pasok party, said after Greek President Karolos Papoulias failed to broker the creation of a government at a meeting with party leaders.
The yield on the 10-year gilt climbed two basis points, or 0.02 percentage point, to 1.90 percent, after declining to a record 1.86 percent yesterday. The 4 percent bond due in March 2022 dropped 0.175, or 1.75 pounds per 1,000-pound face amount, to 118.765.
The U.K. sold 2.75 billion pounds of 5 percent bonds due in March 2025 today. The debt was sold at an average yield of 2.251 percent, compared with 2.356 percent at a previous auction of the securities on Feb. 1.
Germany’s gross domestic product grew 0.5 percent last quarter from the previous three months, when it fell 0.2 percent, the Federal Statistics Office said in Wiesbaden. GDP in the euro region stagnated, the European Union’s statistics office in Luxembourg said. The median forecast of economists surveyed by Bloomberg was for a 0.2 percent contraction.
The U.K. economy fell into its second recession since 2009 in the first quarter.
Britain’s trade deficit shrank to 8.56 billion pounds in March from a revised 8.59 billion pounds in February, the Office for National Statistics said. Economists surveyed by Bloomberg News forecast a reduction to 8.4 billion pounds.
Gilts have gained 0.4 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. U.S. Treasuries rose 1.1 percent, and German bunds returned 2.7 percent.
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