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Pound Declines as EU Meets on Greece, Carney Appointed to BOE

The pound weakened to a one-month low against the euro as European Union finance ministers meet for talks on an updated aid package for Greece, less than a week after an all-night meeting failed to reach an agreement.

Sterling pared declines against the dollar and euro after Bank of Canada Governor Mark Carney was unexpectedly appointed as the next head of the Bank of England. Ten-year gilt yields fell after the Institute for Fiscal Studies said Chancellor of the Exchequer George Osborne may have to extend his austerity program by another year to 2018.

“For today the pound will just be driven by euro-group chatter,” said Christian Lawrence, a London-based currency strategist at Rabobank International. A signal from Europe’s finance ministers that they are moving closer to a deal would push sterling “higher against the dollar and lower against the euro,” he said.

The pound fell 0.1 percent to 80.97 pence per euro at 5:01 p.m. London time. It earlier dropped as much as 0.2 percent to 81.10 pence, the weakest level since Oct. 24. Sterling slipped 0.1 percent to $1.6016.

Rabobank forecasts the pound will strengthen to $1.65 in the next six months, Lawrence said.

Currency Indexes

Sterling has gained 1 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro declined 2.2 percent and the dollar dropped 2.3 percent.

Greece, facing a sixth year of recession in 2013, has been negotiating with the euro area and International Monetary Fund over the measures needed to qualify for the payment of loan installments frozen since June.

A breakthrough hinges on coming up with 10 billion euros ($13 billion) to fill the financing gap that emerged when Greece this month got a two-year extension to 2022 to meet deficit-reduction targets.

The pound pared declines against the dollar after Osborne announced Carney’s appointment. He will take the helm of a British central bank that’s preparing to become the most powerful in the world as it absorbs broad new powers to oversee the financial system and prevent another crisis.

This is sterling supportive “in the sense that he has credibility and that he understands that financials are at the core of the U.K. economy, which will help” the currency, said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York. “The issue is that he will try to maintain a weak pound to help the economy rebalance but that is not much different from his predecessor.”

Debt Target

The 10-year gilt yield fell less than one basis point, or 0.01 percentage point, to 1.84 percent, after sliding to 1.816 percent, the least since Nov. 20. The 1.75 percent bond due in September 2022 rose 0.04, or 0.4 pence per 1,000-pound face amount, to 99.21.

In a report published today, the IFS research group said Osborne is on course to miss his target of reducing the burden of government debt, and further tax increases and spending cuts may be needed to erase the structural deficit in five years.

A second reading of gross domestic product data due to be published tomorrow will show the U.K. economy expanded 1 percent in the third quarter, according to the median of 33 estimates in a Bloomberg survey.

Gilts returned 2.8 percent this year through Nov. 23, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 3.4 percent and U.S. Treasuries earned 2.3 percent.

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