BLBG: Pound Falls Against Dollar, Euro as Consumer Confidence Slumps
By Matthew Brown
Dec. 3 (Bloomberg) -- The pound fell against the dollar and the euro after a report showed U.K. consumer confidence slid last month to the weakest in at least four years, giving the Bank of England more reason to cut interest rates tomorrow.
The British currency also declined versus the Japanese yen and Swiss franc. An index of sentiment fell 6 points to 50, the lowest since the survey began in May 2004, Nationwide Building Society, Britain’s second-biggest mortgage lender, said today. The FTSE 100 Index of U.K. stocks dropped 1.5 percent.
The report “wasn’t taken too well by the markets,” said Mitul Kotecha, head of global foreign-exchange strategy in Hong Kong at Calyon, the investment-banking unit of France’s Credit Agricole SA. ‘There are big expectations the central bank’s going to remain pretty aggressive. The market will be disappointed if it’s anything less than 100 basis points.”
The British currency dropped to $1.4729 as of 9:31 a.m. in London, from $1.4920 yesterday, close to the lowest level since June 2002. It traded at 85.76 pence per euro from 85.23 pence.
The pound declined 26 percent against the dollar this year, the most since at least 1972, as the Bank of England lowered its key rate four times to fend off the worst of the fallout from the global credit crisis. The economy shrank 0.5 percent in the third quarter, after showing zero growth in the second.
Buiter Comments
Former U.K. policy maker Willem Buiter said yesterday the central bank may reduce the benchmark rate to zero early next year. The Bank of England will cut the rate by 1 percentage point to 2 percent tomorrow, according to the median forecast of 60 analysts surveyed by Bloomberg.
Buiter’s views “appear to have stimulated the imagination of the market,” Greg Gibbs, director of foreign-exchange strategy at ABN Amro Holding NV in Sydney, wrote in a note to clients today.
Interest-rate futures slid as traders increased wagers on cuts in borrowing costs. The yield on the contract expiring in March slid 8 basis points to 2.19 percent.
U.K. government bonds rose, sending yields to record lows, as the looming recession drove investors to the safest assets. The yield on the 10-year bond fell 5 basis points to 3.43 percent, the least 1989, when Bloomberg began collating data. The two-year gilt yield declined 6 basis points to 1.69 percent, the lowest level since at least 1989. Yields move inversely to bond prices.
To contact the reporters on this story: Matthew Brown in London on mbrown42@bloomberg.net
