Pound weakens against euro; rate increase less likely

March 15, 2011 - 0:0
The pound depreciated for a third day against the euro as investors pared expectations that the Bank of England will raise borrowing costs and euro-region leaders struck a deal to aid debt-strapped nations. Britain’s currency was little changed against the dollar. Short-sterling futures rose for a third day as investors reduced bets that the U.K.’s central bank will increase its benchmark interest rate from a record low of 0.5 percent. The euro gained against 12 of its 16 most actively traded peers as the leaders of the 17 euro nations agreed to let the European Financial Stability Facility buy bonds directly from governments. “The problem for the pound is that it’s had a good run so far this year,” said Gavin Friend, a markets strategist at National Australia Bank in London. “The market is still paring back over-aggressive expectations and there’s some independent euro strength after the European leaders’ agreement over the weekend.” The pound weakened 0.2 percent to 86.66 pence per euro at 8:36 a.m. in London. Against the dollar, the U.K. currency depreciated less than 0.1 percent to $1.6078. The Bank of England left its benchmark interest rate unchanged on March 10 as policy makers chose to set aside concerns on rising inflation pressures to support the economic recovery. Short-sterling futures rose, sending the implied yield on the December contract down three basis points to 1.43 percent. U.K. government bonds rose, pushing the yield on the 10- year gilt down two basis points to 3.61 percent. Two-year yields fell three basis points to 1.27 percent. (Source: Bloomberg)