The pound rose to a two-month high against the euro as a funding crisis in Cyprus and political deadlock in Italy spurred demand for U.K. assets as a haven.
Sterling trimmed a quarterly decline versus the common currency even as an Office for National Statistics report confirmed the U.K. economy shrank in the fourth quarter, putting the nation on course for another recession. The pound was also boosted after Italy’s Democratic Party leader Pier Luigi Bersani said there was no possibility of a broad coalition to resolve the stalemate. U.K. government bonds advanced, with 10-year securities gaining for a fifth day.
“It’s being driven by euro events, general market risk events rather than anything specifically U.K.,” said Gavin Friend, a currency strategist at National Australia Bank Ltd. in London. “We seem to be in a mindset where the euro is a sell on rallies. Investors have been scared off by the comments coming out of Europe and the measures they are taking.”