Pound Rises Against Euro on Greece Concern; U.K. Gilts Decline
The pound rose for the first time in four days against the euro amid speculation an agreement among European finance ministers to ease the terms of emergency aid for Greece will fail to stem the region’s debt crisis.
Sterling strengthened versus most of its 16 major counterparts after a report confirmed Britain’s economy exited a double-dip recession in the third quarter, underpinning demand for the U.K. currency. European finance ministers meeting in Brussels cut the rates on bailout loans for Greece, suspended interest payments for a decade, gave the country more time to repay and engineered a bond buyback. U.K. gilts declined.
“None of it speaks to it being a smooth process,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. (BK) in London. “The euro-zone crisis is not going to go away smoothly, it’s just one fraught step after another. The U.K. currency represents a credible safe haven for people looking to diversify away” from the euro.
The pound appreciated 0.2 percent to 80.75 pence per euro at 4:40 p.m. London time after strengthening through its 200-day moving average for the first time since Nov. 22. It earlier depreciated to 81.14 pence, the weakest since Oct. 24. The U.K. currency was little changed at $1.6024 after rising to $1.6056, the highest since Nov. 2.
Sterling was supported as investors questioned whether Greece can stomach further economic discipline and whether the bond buyback will generate enough savings. A shortfall would put outright debt relief back on the agenda.
Details of the bond purchases are still to be worked out, an European Union spokesman said today in Brussels.
U.K. gross domestic product rose 1 percent from the second quarter, the same as reported on Oct. 25, the Office for National Statistics said in London. No revision was forecast, according to the median of 33 estimates in a Bloomberg survey.
Bank of England Governor Mervyn King sees U.K. inflation above target for some time, slowing in medium term, he told lawmakers in London today. The chances of a rapid recovery in the U.K. are not very great, he said.
Sterling has been boosted this year by investors seeking an alternative to euro-area assets. The U.K. currency has appreciated 1.4 percent in 2012, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro has weakened 2.2 percent.
The yield on the 10-year gilt climbed two basis points, or 0.02 percentage point, to 1.85 percent after rising to 1.88 percent, the highest level since Nov. 2. The 1.75 percent bond maturing in September 2022 dropped 0.13, or 1.30 pounds per 1,000-pound face amount, to 99.08.
“The market moves remain Greece-related,” said Brian Barry, a London-based analyst at Investec Bank Plc. For “all the grand statements of unity, you could argue that some of the forecasts are based upon relatively optimistic scenarios. Investors are likely to remain reluctant to draw a line under the Greek crisis just yet.”
Gilts returned 2.8 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 3.6 percent and U.S. Treasuries rose 2.5 percent.
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