Pound Drops Against Dollar, Euro

The pound snapped a three-day gain against the dollar as an industry report showed a squeeze on mortgage lending kept U.K. house price declines close to the most widespread level in at least three decades.

The currency also fell against the euro as traders bet quickening inflation will force the Bank of England to raise interest rates, even as the economy threatens to slip into recession. The number of residential property agents and surveyors saying prices fell in May exceeded those reporting gains by more than 90 percent, the Royal Institution of Chartered Surveyors said today. Two-year bonds gained for the first time in almost a week.

The U.K. currency dropped as much as 1 percent, its biggest loss since June 2, to 1.9544, and was at $1.9576 by 1:52 p.m. in London, from $1.9751 late yesterday. It fell to 79.33 pence to the euro, from 79.21. The pound may fall to $1.89 and 80 pence per euro in the next three months, Klawitter forecast.

The number of property agents saying prices declined exceeded those reporting gains by 92.9 percentage points, the RICS said. That compares with 94.7 percent in April, which was the most since the series began in 1978. Every region showed prices declining over the past three months, the group said.

The pound also declined against the dollar after Federal Reserve Chairman Ben S. Bernanke said risks to the U.S. economy have diminished, prompting traders to increase bets on higher interest rates in the world's largest economy. The Fed will ``strongly resist'' any waning of public confidence in stable prices, Bernanke said at a Boston Fed conference.

The U.K. currency stayed lower after a government report showed factory production unexpectedly rose in April. Output rose 0.1 percent, compared with a 0.5 percent loss in March, the Office for National Statistics in London said today. From a year earlier, manufacturing gained 0.1 percent.

Pound Drops Against Dollar, Euro

TradingEconomics.com, Bloomberg
6/10/2008 7:11:10 AM