BLBG: Pound Drops Versus Euro as Retail Sales Rise Less Than Forecast
By Matthew Brown
Jan. 22 (Bloomberg) -- The pound fell against the euro after a report showed U.K. retail sales grew less than forecast last month and Britain’s main opposition party said it supported a U.S. proposal to rein in banks’ risk-taking.
The currency’s second straight drop trimmed its advance against the euro this year to 1.7 percent. December retail sales rose 0.3 percent from November, the Office for National Statistics said today, below the 1.1 percent gain forecast by economists. George Osborne, the Conservative Party’s Treasury spokesman, said he wants to see an international agreement to separate retail banking from proprietary trading in the wake of President Barack Obama’s plan for U.S. banks.
“The pound’s weakness today is down to retail sales,” said Simon Derrick, chief currency strategist in London at BNY Mellon Corp. “George Osborne’s backing of the Obama bank plan isn’t helping either.”
The pound weakened 0.2 percent to 87.1 pence per euro as of 11:11 a.m. in London. It traded at $1.6234 from $1.6196 yesterday and at 146.56 yen from 146.45 yen.
Two-year gilts rose for a second day, pushing the yield down 4 basis points to 1.18 percent. The 10-year gilt yield fell 3 basis points, to 3.89 percent.
“Risk aversion has been in place for two days now, and there is a flight to quality in fixed-income markets,” said Matteo Regesta, an interest-rate strategist in London at BNP Paribas SA. “Gilts are benefiting from flows out of euro-zone peripherals.”
Greek, Portuguese and Spanish bonds all declined today.
Pound Prediction
UniCredit SpA, the fourth-best forecaster of the pound’s movement against the dollar last year, cut its predictions for sterling in 2010, citing deteriorating prospects for British economic growth.
“We lowered our target based on expectations the recovery in U.K. economic activity will remain very moderate at least for most of the first half,” Roberto Mialich, a senior global- currency strategist in Milan, said by e-mail.
The U.K. economy grew 0.4 percent in the fourth quarter, its first expansion since March 2008, a report is forecast to show on Jan. 26.
The British economy will grow 2.7 percent in 2010 after contracting 2.5 percent last year, according to Bloomberg economist forecasts. The 10-year gilt will yield 4.2 percent at the end of the year, according to a separate survey.
To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net
