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Pound Rises to Six-Week High Against Euro on Cyprus; Gilts Gain

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March 25 (Bloomberg) -- The pound rose to a six-week high against the euro amid concern political wrangling over a 10 billion-euro ($13 billion) bailout of Cyprus has undermined faith in Europe’s financial system.

Sterling extended two weeks of gain versus the common currency as Reuters reported Dutch Finance Minister Jeroen Dijsselbloem as saying the Cypriot rescue plan, which included losses for some bondholders and depositors, may become a template for euro-area bank bailouts. The pound was also supported as an U.K. industry report showed house prices rose this month. Gilts advanced, pushing 10-year yields to the lowest level this year.

“This is a negative euro effect,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “People were already beginning to wonder if there was enough bad news priced in sterling. That speculation was already out there and then we’ve had this news from Cyprus.”

The pound appreciated 0.6 percent to 84.77 pence per euro at 4:47 p.m. London time after reaching 84.71 pence, the strongest level since Feb. 11. The U.K. currency weakened 0.3 percent to $1.5180.

Cyprus avoided a disorderly default by bowing to demands from creditors to shrink its banking system in exchange for the bailout. President Nicos Anastasiades agreed to shut the country’s second-largest bank under pressure from a German-led bloc of creditors in night-time negotiations.

The accord spares bank accounts below the insured limit of 100,000 euros, while imposing losses that two European Union officials said would be no more than 40 percent on uninsured depositors at Bank of Cyprus Plc, the island’s largest bank.

Leaving Euro

Cypriot lawmaker Nicholas Papadopoulos, chairman of the parliamentary finance committee, said the nation must explore the benefits of exiting the euro area, speaking in an interview with Bloomberg News in Nicosia.

Average house values in England and Wales increased 0.3 percent in March, the biggest advance since March 2010, property researcher Hometrack Ltd. said in an e-mailed statement. London home prices jumped 0.7 percent, the most since February 2010.

Sterling appreciated 0.8 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro weakened 1 percent and the dollar climbed 0.7 percent.

The yield on the benchmark 10-year gilt declined four basis points, or 0.04 percentage point, to 1.82 percent after dropping to 1.81 percent, the lowest level since Dec. 31. The 1.75 percent bond maturing in September 2022 gained 0.31, or 3.10 pounds per 1,000-pound face amount, to 99.425.

Gilts returned 1.2 percent this month through March 22, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 0.5 percent, while Treasuries fell 0.2 percent.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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