U.K. Pound Falls Against Euro


The pound fell against the euro and declined to within a quarter of a cent of a three-week low versus the dollar before a government report that may show U.K. house prices grew at the slowest pace in 1 1/2 years in December.

The pound also dropped against the yen and Swiss franc as falling stocks prompted so-called carry trade investors to pare holdings of higher-yielding currencies. The Bank of England will lower its main rate a half-percentage point to 4.75 percent by midyear, a Bloomberg survey showed, after last week cutting it a quarter-point amid the worst housing slump in a decade.

Against the euro, the pound fell the most in more than a week, to 74.94 pence by 9:13 a.m. in London, from 74.54 pence on Feb. 8. It also dropped to $1.9433 from $1.9459. Britain's currency weakened 0.7 percent to 207.37 yen and slipped 0.6 percent to 2.129 francs.

House prices in Europe's second-biggest economy grew an annual 8 percent in December, down from a 9.5 percent increase the month before, according to the median of nine forecasts in a Bloomberg News survey of economists. The Department for Communities and Local Government will release the data at 9:30 a.m. London time.

European and Asian stocks declined after Group of Seven officials said further financial-market turmoil will hurt economic growth, damping demand for carry trades, where investors borrow cheaply in one currency and convert the proceeds to another, such as the pound, they can lend out for a higher return. They earn the spread between the two rates and take the risk currency moves will erase their profit.

The U.K. still has the highest main lending rate among the G-7 nations and compares with benchmarks of 0.5 percent in Japan and 2.75 percent in Switzerland.


TradingEconomics.com, Bloomberg
2/11/2008 7:00:35 AM