U.K. Pound Advances Against Euro, Little Changed Versus Dollar

By Andrew MacAskill

July 30 (Bloomberg) -- The U.K. pound strengthened against the euro for a second day.

The British currency climbed to 78.72 pence per euro as of 7:22 a.m. in London, from 78.78 yesterday. It was at $1.9779 from $1.9788.

The pound fell to the weakest level in more than two weeks against the dollar yesterday and government bonds advanced after an index of U.K. retail sales sank to a 25-year low and mortgage approvals declined, fueling speculation the economy is headed toward a recession.

The yield on the 10-year gilt lost 5 basis points to 4.90 percent. The price of the 5 percent security due March 2018 rose 0.41, or 4.1 pounds per 1,000-pound ($1,981) face amount, to 100.79. The yield on the two-year gilt declined 5 basis points to 4.86 percent. Bond yields move inversely to prices.

Traders increased bets the Bank of England will lower its benchmark rate, futures showed yesterday. The implied yield on the December short-sterling futures contract fell 4 basis points to 5.75 percent. The central bank has lowered key interest rates three times since November, to 5 percent.

The faltering economy will weaken the pound to $1.90 and to 80 pence per euro by year-end, according to the median forecast of analysts and strategists surveyed by Bloomberg. The yield on the 10-year note will end the year at 4.89 percent, according to a separate survey.

The pound fell 6.6 percent against the euro this year. It's little changed versus the dollar.

To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net