Piagi reports as the Pound Falls to 13-Month Low Versus Euro
Rates Page 25.01.2013
The pound weakened for a second day versus the euro, falling to a 13-month low, after a report showed the U.K. economy shrank more than forecast in the fourth quarter of 2012, damping demand for the British currency.
Sterling declined against 13 of its 16 major counterparts, dropping to a five-month low versus the dollar, as the contraction left the U.K. on the brink of an unprecedented triple-dip recession. The euro strengthened before the European Central Bank indicates how much of the three-year loans granted to banks to avert the sovereign-debt crisis will be repaid early. Gilts fell for a second day.
“Broad sentiment seems to be that the euro area is doing better and the risks there have come off, whereas the U.K. economy remains weak,” said Raghav Subbarao, a foreign-exchange strategist at Barclays Plc in London. “The move in euro- sterling has been far more than we expected, and from a medium- term perspective it looks a little unjustified.”
The pound depreciated 0.5 percent to 85.16 pence per euro at 10:38 a.m. London time, after touching 85.37 pence, the weakest since Dec. 12, 2011. Sterling dropped 0.1 percent to $1.5773 after sliding to $1.5746, the least since Aug. 21.
The pound has dropped 3 percent this year, the second-worst performer after the yen out of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 2.3 percent and the dollar gained 0.3 percent.
“I have a negative view on sterling and most of the flows are versus the euro right now,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in London. “The U.K. economy doesn’t look particularly strong. Euro-area tail risks have been unwinding.”
Gross domestic product dropped 0.3 percent from the three months through September, the Office for National Statistics said in London. That compares with the median of 38 estimates in a Bloomberg News survey for a decline of 0.1 percent.
Growth in the U.K. is struggling to gain traction more than three years after the economy emerged from its deepest recession since World War II, with heavy snow this month raising the possibility of a further contraction in the current quarter. Bank of England Governor Mervyn King has said policy makers will provide more stimulus if needed.
Benchmark 10-year gilt yields rose three basis points, or 0.03 percentage point, to 2.04 percent. The rate increased two basis points yesterday. The 1.75 percent bond maturing in September 2022 fell 0.285, or 2.85 pounds per 1,000-pound face amount, to 97.45.