Pound Drops Versus Euro

The U.K. pound fell to the lowest level in almost three months against the euro on speculation a deepening slump in the nation's housing market may force the central bank to cut interest rates.

The pound also dropped to near a two-year low versus the dollar as Taylor Wimpey Plc., the largest U.K. homebuilder, reported a first-half loss of 1.4 billion pounds ($2.6 billion), adding to concern the economy is entering a recession. Nationwide Building Society will tomorrow say house prices fell for a ninth month, according to economists surveyed by Bloomberg News. The difference in yield between 10-year gilts and German bunds slipped to the narrowest in seven months.

The U.K. currency fell to 80.20 pence per euro by 4:35 p.m. in London, the lowest since June 9, from 79.65 yesterday. The pound was little changed at $1.8325, showing a decline this month of almost 8 percent. It's headed for the biggest monthly loss since October 1992, when it sank 12 percent.

Taylor Wimpey and other builders are being forced to cut operations and shed jobs as the economy, Europe's second-largest, reels from the most widespread housing slump in 30 years. Bank of England Governor Mervyn King said this month the U.K. faces a ``difficult and painful adjustment'' as falling house prices and rising inflation hurt consumer spending.

The pound dropped versus the dollar in each of the past five weeks, the longest losing run since February 2006. It slipped last week after a government report showed economic growth stagnated in the second quarter, adding to pressure on the central bank to cut interest rates to revive the economy.

Pound Drops Versus Euro

TradingEconomics.com, Bloomberg
8/27/2008 8:48:56 AM