POUND REACHES 3-MONTH HIGH AGAINST EURO

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Contributor / 2012-04-16 18:17:40

The pound reached a three-month high against the euro as Italian borrowing costs increased at a debt sale, underpinning the appeal of U.K. assets as a haven from the European debt crisis. Sterling strengthened for a second day against the dollar and the yen even after a U.K. report showed the trade deficit widened in February more than economists predicted. Italy sold securities due in 2015 at an average yield of 3.89 percent, up from 2.76 percent at the previous auction last month. Gilts declined as demand slipped at an auction of 20-year bonds.

Sterling is considered a safe haven compared to the euro as it’s in a better position. From a European perspective it’s probably the most attractive place to invest, which is helping euro-sterling grind lower. The pound appreciated 0.1 percent to 82.36 pence per euro at 12:03 p.m. London time after advancing to 82.27 pence, the strongest level since Jan. 9. The U.K. currency gained 0.3 percent to $1.5959, and rose 0.5 percent to 129.22 yen.

The U.K. trade deficit widened to 8.77 billion pounds from a revised 7.88 billion pounds in January, the UK Office for National Statistics said. UK Prime Minister David Cameron is in Asia this week, leading a trade and diplomatic mission seeking to boost commercial ties with the region. The government hopes exports can bolster the British economy as manufacturers cope with rising unemployment and inflation that’s reducing demand at home. Britain’s trade deficit with countries outside the European Union widened to 5.02 billion pounds in February from 3.72 billion pounds in January. Exports to those countries fell by 8.8 percent to 11.7 billion pounds.

The gap with EU nations narrowed to 3.76 billion pounds from 4.17 billion pounds. While Bank of England Governor Mervyn King still says the U.K.’s predicament feels “like a crisis,” policy makers kept the central bank’s asset-purchase plan unchanged last week as they awaited new forecasts for growth and inflation due next month. The British Chambers of Commerce said April 3 that the U.K. will probably avoid a recession, though the recovery remains “weak.”

The euro may decline to the lowest in almost two years against the pound, after failing to rise above a key level of resistance. Europe’s shared currency is poised to decline to 81.41 pence over the next month after being unable to strengthen above 82.87 pence this week many market analysts are predicting. An inability to push above here highlights inherent market weakness, with the 21-day moving average at 83.12 pence bearing down, the risks into April are firmly seen lower.

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