Pound Falls to Record Against Euro


The pound fell to a record against the euro and had its biggest decline in two weeks versus the dollar as U.K. consumer confidence slipped to the lowest level in more than three years.

The Nationwide Building Society said its confidence index fell three points to 78 last month, the least since the survey began in May 2004, stoking bets the Bank of England will cut borrowing costs to curb an economic slowdown. The implied yield on the sterling interest-rate futures contract due March fell 4 basis points to 5.73 percent.

Against the euro, the pound fell 0.2 percent to 76.71 pence by 11:02 a.m. in London, from 76.60 yesterday, and traded at an all-time low of 76.89 pence earlier. The British currency also dropped 0.3 percent to $1.9797, from $1.9864, and was at 205.05 versus the Japanese yen, from 205.13. It will trade at $1.93 in three months, Anishchanka said.

The British currency fell against all but two of the 16 most-traded currencies this year on speculation the central bank will cut borrowing costs to buoy growth in Europe's second- largest economy as a decade-long property boom ends. Home prices fell for a fourth straight month in February in the worst streak since 2000, Nationwide said on Feb. 29.

The pound pared losses today after a report showed growth in U.K. services unexpectedly accelerated last month to the highest since September as companies raised prices.

The Bank of England, which cut the key interest rate to 5.25 percent last month to shore up economic growth, will keep the benchmark unchanged tomorrow, according to 59 of 60 economists surveyed by Bloomberg. The weighted average of 20 forecasts in a separate survey signaled policy makers will lower the rate to 5 percent by the middle of the year and 4.75 percent by year-end.

The central bank will resume cutting the key rate in May, although more immediate reductions will bolster the pound by improving the outlook for the economy, Anishchanka said.


TradingEconomics.com, Bloomberg
3/5/2008 6:41:55 AM