Pound Falls Near Two-Year Low Vs Dollar


The pound fell to near a two-year low against the dollar and slipped versus the euro after BoE policy maker Tim Besley said inflation will fall by the end of next year, adding to the case for interest-rate cuts.

The currency extended its longest sequence of declines against the dollar in more than 37 years, dropping for a 13th day. Increases in food and energy prices will slow, allowing inflation to ease toward the central bank's 2 percent ceiling by the end of 2009, Besley wrote in the Sun newspaper today. The Bank of England will release the minutes of its last policy meeting tomorrow.

The pound was at $1.8623 by 1:12 p.m. in London, from $1.8651 yesterday. It slipped to $1.8512 on Aug. 15, the lowest level since July 2006. The currency declined to 78.85 pence per euro, from 78.81.

Britain's currency lost 3 percent against the dollar last week, its biggest five-day loss since the period through July 1, 2005, amid speculation falling house prices may exacerbate the economic slowdown. BOE Governor Mervyn King said Aug. 13 there is a ``chill in the economic air.'' The average asking price for a house fell 4.8 percent in August, Rightmove Plc, the nation's most-used property Web site, reported yesterday.

The pound has lost almost 12 percent since reaching a 26- year-high of $2.1161 on Nov. 9 as the Federal Reserve cut interest rates seven times to 2 percent from 5.25 percent since September. The BOE cut its main rate by 0.75 percentage point in the period.

The U.K. central bank kept its benchmark interest rate at 5 percent on Aug. 7 for a fourth month, as policy makers weighed the risk of accelerating inflation against the threat of a recession. Minutes of their meeting, showing how the panel voted, are due for release at 9:30 a.m. in London tomorrow.


TradingEconomics.com, Bloomberg
8/19/2008 6:19:50 AM