Pound Reverses Gains Against Euro on Easing Regional Concerns

The pound slid against the euro after European Central Bank Governing Council Member Axel Weber said Europe’s rescue fund could be increased, easing concerns that the region’s debt crisis would spread.

Sterling reversed earlier gains against the common currency. The 750 billion-euro ($1 trillion) European Financial Stability Facility could be expanded if necessary to assure markets, Weber said in Paris today. Spanish and Portuguese bonds declined on speculation the nations will have to follow Ireland and Greece in asking for European Union assistance.

“For the time being the pound will continue to take its cue from what’s happening in the euro area and whether people want to worry about contagion to sterling in terms of trade,” said Paul Robson, a senior foreign exchange strategist at Royal Bank of Scotland Group Plc in London. “Further declines in terms of euro-sterling look likely.”

The pound weakened 0.2 percent to 84.78 pence per euro at 4:50 p.m. in London, paring an earlier 0.3 percent gain. It appreciated to the strongest since Sept. 21 yesterday. Sterling was little changed at $1.5774 after slumping to $1.5733, its weakest since Oct. 27.

“Seven hundred and fifty billion should be enough to assure the markets,” Weber said at the German embassy in Paris late yesterday. “If not, it will have to be increased.”

Gilts fell after members of the Bank of England’s Monetary Policy Committee, which remains split on a possible extension of its asset-purchase program, gave no indication the central bank plans to step up so-called quantitative easing to support the economic recovery.

‘Broadly Balanced’

Bank Governor Mervyn King told lawmakers in London that policy makers view inflation risks as “broadly balanced” at present and are ready to tighten or loosen policy as needed.

The Confederation of British Industry said its U.K. retail- sales index rose in November and stores expect momentum to continue next month in the run-up to Christmas.

The 10-year bond fell, pushing the yield up 4 basis points to 3.37 percent, and the two-year note yield gained 4 basis points to 1.04 percent.

Gilts have returned 7 percent this year, compared with a 7.2 percent gain for German bonds and 7.3 percent for U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

Sterling has weakened 3.7 percent against a basket of its developed-country peers this year, according to Bloomberg Correlation-Weighted Currency Indexes, making it the third- worst-performing currency after the euro and Norwegian krone.