UK 10-year gilts rose the most in 12 weeks, lowering yields to the least this month, after the Bank of England kept its benchmark interest rate at a record low while turmoil in Europe stoked demand for safety.
Sterling strengthened against the euro for the first week in three as signs the euro-region's debt crisis is worsening boosted buying of alternatives to the shared European currency. The nine-member Monetary Policy Committee on July 7 left its key rate at 0.5 per cent and maintained its bond-purchase plan at £200 billion (Dh1.18 trillion), as predicted by all economists in Bloomberg surveys.
"Gilts are doing well because of the safe-haven aspect, but the overarching theme is that there isn't going to be monetary-policy tightening for some time," said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. "Sterling is clearly in a better position than the euro, which is really being weighed down by the sovereign-debt crisis."
Ten-year gilt yields sank 20 basis points in the week to 3.19 per cent on Friday in London, after reaching 3.18 per cent, the least since June 28.
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Sterling gained 1.8 per cent last week to 88.81 pence per euro. The pound fell 0.4 per cent to $1.6017, after falling to as low as $1.5932 Thursday, the weakest intraday level since June 28. It lost 0.5 per cent to 129.44 yen.
Britain's currency has weakened 2.6 percent this year against a basket of nine developed-market currencies tracked by Bloomberg Correlation-Weighted Currency Indexes, as worsening economic growth limits the central bank's ability to raise rates.