07.03.201408:12:44UTC+00Pound Decline Most in a Month Against Euro on ECB; Gilts Pullback

The pound sagged down the most in more than a month versus the euro as European Central Bank President Mario Draghi raised projections for euro-area development this year, increasing the relative allure of the shared currency.

U.K. 10-year bonds retreated with German bunds. The pound slumped versus most of its 16 major counterparts dropping most versus the Australian dollar, as the Bank of England continue with its interest rates at a record low. Policy makers held their bond-purchase stimulus goal at 375 billion pounds ($628 billion) and said they would reinvest 8.1 billion pounds of funds related to the plan starting March 10.

“This is a pure euro story,” said Lee McDarby, executive director of U.K. corporate foreign-exchange sales at Nomura International Plc in London. “It certainly seems that sterling is an innocent bystander in this afternoon’s market volatility.”

The pound backslide 0.7 percent to 82.73 pence per euro at 4:32 p.m. London time, the largest plunge down since February 3. The currency was slightly altered at $1.6738 after surging to $1.6823 on February 17, the best performing mark since November 2009.

The pound tumbled to the worst position since February 12 against the euro after the ECB raised its growth projection for gross domestic product in the currency bloc to 1.2 percent from 1.1 percent estimated in December. ECB policy makers kept the key interest rate at a record low 0.25 percent today, disappointing 14 out of 54 analysts surveyed by Bloomberg News who predicted a trim.

BOE Policy

The Bank of England’s decision to stay with the official bank rate at 0.5 percent was assumed by all 52 economists in a separate Bloomberg survey. Analysts also projected no alteration in the bank’s asset purchase plan.

The central bank said in a statement today it plans to reinvest 8.1 billion pounds “evenly across the three gilt-maturity sectors,” of three-to-seven years, seven-to-15 years and more-than-15 years in operations starting next week. The BOE said in its quarterly Inflation report last month it intends to stay with the stock of bought assets at least until the first hike in its benchmark rate.

The U.K. government has more than 35 billion pounds of 2.25 percent bonds maturing tomorrow, data recorded by Bloomberg show. The Bank of England’s holdings of the securities, bought as part of the Monetary Policy Committee’s asset-purchase plan, have a face worth of 8.2 billion pounds.

The 10-year gilt yield spiked up five basis points, or 0.05 percentage point, to 2.77 percent. The 2.25 percent bond due in September 2023 depreciated 0.385, or 3.85 pounds per 1,000-pound face amount, to 95.71.

German Spread

Germany’s 10-year yield spiked up four basis points to 1.65 percent, leaving the extra yield investors demand to hold the U.K. securities over bunds slightly altered at 112 basis points today. The spread achieved 113 basis points in January, the widest since October 2005, based on closing-market data.

Sterling has appreciated 13 percent in the past year, the best mover among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid bets the central bank is moving toward increasing interest rates. The euro spiked up 7 percent, while the dollar backslide 0.5 percent.

“The pound may drift a little higher, but I wouldn’t want to be buying it,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “People are looking through the decision today and are considering the outlook for future policy.”

Gilts handed investors a 1 percent loss in the 12 months through yesterday, according to Bloomberg World Bond Indexes. U.S Treasuries plummeted 1.3 percent, while German securities returned 0.8 percent.