Pound Drops Versus Euro as Greece Says Work to Start on Accord

Updated on

The pound weakened versus the euro for the first time in three days after a Greek government official said his nation will start drafting a staff-level funding agreement with representatives of international creditors.

Sterling extended its longest run of losses against the dollar since March as the Greek comments eased demand for the British currency as a haven. Officials from Greece and representatives of creditor institutions are to start drafting the accord on Wednesday, a Greek government official said in an e-mail to reporters. A European Union official said Greece’s creditors aren’t yet drafting a final accord.

“Euro-sterling moved higher as on the face of it there seems to be some sort of a solution on Greece,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London. “It looks like a step in the right direction.”

The pound weakened 0.5 percent to 71.01 pence per euro at 5:40 p.m. London time. Sterling fell 0.4 percent to $1.5327, declining for a fourth-straight day.

Sterling Safety

Increasing concerns over Greece’s ability to repay its lenders on time, coupled with forecast-beating U.K. economic data, had prompted some investors to seek refuge in sterling’s relative safety in recent days.

This has helped the British currency appreciate to levels close to 70.14 pence per euro reached on March 11, which was its strongest against the euro since November 2007.

If “some sort of sustainable solution,” were arrived at for Greece “it does remove a big chunk of risk to the euro,” Banco Santander’s Bennett said.

In the longer-run sterling will “mostly be driven by external market forces,” according to Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt.

“There will be general euro weakness due to the ongoing expansionary monetary policy by the European Central Bank so euro-sterling will trend downwards,” Nguyen said, adding that the U.S. Federal Reserve’s policy tightening later in the year would help the dollar appreciate against the pound.

With reports on Thursday due to show economic growth continuing and a pick-up in lending for home loans, the British currency may find support.

The yield on benchmark 10-year gilts was little changed at 1.88 percent. The price of the 5 percent bond due in March 2025 was 127.72 percent of face value.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE