EU focus: Pound declines versus the Dollar

The pound fell the most against the dollar in almost a week and gilts rose as escalating political instability in the Middle East and North Africa curbed investor demand for all but the safest assets.

Sterling also weakened against the Swiss franc and the Japanese yen as oil prices surged to the highest in more than two years amid concern that production in the holder of Africa’s biggest crude reserves will be disrupted.
The pound strengthened against the euro as a report showed the U.K.’s budget deficit shrank more than forecast last month.
Government bonds rallied across the world while stocks and U.S. index futures declined as the Libyan unrest hurt investor demand for assets perceived as being more risky. Al-Jazeera reported that at least 250 people have died in the Libyan capital of Tripoli alone during anti-government protests, which mirror those that toppled regimes in Tunisia and Egypt.
Minutes from the central bank’s Feb. 10 meeting, when it kept its benchmark rate unchanged at a record low 0.5%, will be released tomorrow. A small increase in the key interest rate may prevent a more rapid tightening later, Weale said in a BBC Radio 4 interview broadcast yesterday.
Policy makers have been split three ways since October, with Adam Posen calling for an expansion of the bank’s bond- purchase plan and Andrew Sentance voting to raise the key rate by 25 basis points to 0.75%. Sentance was joined by Martin Weale at the central bank’s Jan. 13 rate decision.
Calls for higher interest rates in the U.K. come at the same time that Britain attempts to implement the deepest budget cuts since World War II. Prime Minister David Cameron’s coalition government is trying to reduce the fiscal deficit from an estimated 10% of gross domestic product in the year through March to 1.9% by 2015.
Britain posted the biggest budget surplus since July 2008 as government revenue surged in the biggest tax-collection month of the year.