Pound loses out to dollar with latest jobless data due

London: The pound fell against the dollar for a second day before the Bank of England releases its quarterly Inflation Report and new economic forecasts, and data that may show unemployment matched a 16-year high.

Sterling was at its strongest level in three-and-a-half years against the euro as turmoil in Greece boosted demand for the UK currency. Gilts jumped, driving the 10-year yield to a record low. Bank of England Governor Mervyn King will justify why officials stopped adding to its stimulus even with the UK mired in recession.

The pound slipped 0.3 per cent to $1.5942 in London. It earlier fell to $1.5936, the lowest level since April 18. Sterling appreciated as much as 0.1 per cent to 79.51 pence per euro, the strongest level since November 2008, before trading little changed at 79.64 pence.

Sterling has advanced 4.3 per cent in 2012, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as Europe's sovereign debt crisis spurred demand for British assets as a haven. The dollar gained 1.4 per cent and the euro declined 1 per cent.

Jobless-benefit claims climbed by 5,000 last month from March, the Office for National Statistics will say today, according to the median forecast of economists in a Bloomberg News survey.

Unemployment as measured by International Labour Organization methods rose to 8.4 per cent in first quarter, equalling a 16-year high, from 8.3 per cent, according to a separate survey.

The UK economy fell into its second recession since 2009 in the first quarter, the statistics office said on April 25.

Gilt record

The 10-year gilt yield dropped four basis points to 1.857 per cent, the lowest on record, and was at 1.87 per cent. The 4 per cent bond due in March 2022 advanced 0.210, or £2.10 per £1,000 face amount, to 118.975.

Gilts have returned 0.2 per cent this year, according to indices compiled by Bloomberg and the European Federation of Financial Analysts Societies. US Treasuries gained 1.1 per cent and German bunds returned 2.6 per cent, the indexes show.

The UK 10-year break-even rate, a measure of inflation expectations derived from a difference in yield between regular and index-linked bonds, was at 2.69 percentage points. It reached 2.86 percentage points on April 2, the most this year.