Sunday, January 13, 2013

Pound Slumps Most Since February Versus Euro on Growth Concern

The pound posted its biggest weekly decline against the euro since February amid speculation the U.K. is struggling to maintain growth as European policy makers signaled optimism for the euro-region’s economy.


Sterling slipped to a nine-month low against the 17-member currency after U.K. Prime Minister David Cameron predicted a difficult year for the U.K.

The Bank of England refrained from adding further stimulus while holding its key interest rate at a record low of 0.5 percent.

A government report yesterday showed U.K. manufacturing production unexpectedly fell in November. Gilts advanced.

“We’re still seeing the easing of euro-zone sovereign debt concerns leading to a weakening of safe-haven inflows to the U.K.,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London.

“That’s effectively removing a key pillar of support for the pound, leaving it more vulnerable to the still very weak U.K. economic fundamentals.”

The pound depreciated 1.8 percent in the week to 82.77 pence per euro at 4:51 p.m. London time yesterday, when it depreciated to 82.87 pence, the weakest level since April 4.

That’s the biggest weekly move since Feb. 24. Sterling advanced 0.4 percent to $1.6133. The pound has fallen 1.3 percent since the start of 2013, the second-worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes.

The yen slid 3.5 percent. “It’s a tough economic environment that we’re in,” Cameron said on BBC Television’s “Andrew Marr Show” on Jan. 6.

“Right now, Britain needs low interest rates.”

Gilt Yields The 10-year gilt yield fell four basis points, or 0.04 percentage point, to 2.08 percent, after climbing 30 basis points points in the week ended Jan. 4.

The 1.75 percent bond due in September 2022 rose 0.32, or 3.20 pounds per 1,000-pound face amount, to 97.11.Sterling lost as much as 1 percent versus the 17-nation currency yesterday, its steepest intraday slide since September, after European Central Bank President Mario Draghi said a day earlier that the euro-area economy will slowly return to health in 2013 as the region’s bond markets stabilize.

Banks are becoming less bullish on the pound against the euro, according to Bloomberg surveys. The median forecast of 49 lenders calls for sterling to end the year at 81 pence per euro, from 80 pence a week earlier.

The U.K. is scheduled to auction 1 billion pounds of inflation-linked debt due in 2029 on Jan. 17. The sale comes two-days after data that economists said will show retail price inflation held at 3 percent last month.

A separate report the same day will show consumer-price inflation was at the highest rate since May for a third month, according to another survey.

U.K. 10-year inflation-linked bond yields tumbled to the lowest level since Bloomberg started collecting the data in 1992.

The rate slid to as low as minus -0.99 percent two days ago after the Office for National Statistics said it will maintain its current formula for calculating the retail price index, allaying concern that a change may dent returns on the securities.

bloomberg.com

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