By Lukanyo Mnyanda and Gavin Finch Dec. 17 (Bloomberg) -- The U.K. pound fell to 93 pence per euro for the first time after a report showed jobless claims rose last month at the fastest pace since 1991, prompting traders to raise bets the central bank will cut its key rate. The pound also dropped versus the dollar after Charles Goodhart, a former member of the Bank of England’s monetary policy committee, said Governor Mervyn King should exercise “aggressive” policies to combat the credit crisis. The Federal Reserve yesterday cut interest rates to a range between zero and 0.25 percent. Government bonds surged, pushing the yield on the two-year gilt to the lowest level in at least 16 years. “People looked at what the Fed did and thought where they go, the Bank of England will follow,” said Jeremy Stretch, a senior strategist at Rabobank International in London. “The dreadful numbers, along with the probability of more rate cuts, will certainly keep the pound under pressure.” The pound slipped as much as 3.5 percent to 93.27 pence per euro, the lowest level since the euro’s debut in 1999, and was at 92.90 pence at 5:43 p.m. in London. Against the dollar, it dropped 0.9 percent to $1.5443, from $1.5581 yesterday. The pound looks “oversold to a degree,” said Stretch, adding that his confidence it won’t reach parity with the euro in the short term “has been significantly reduced.” The number of Britons receiving unemployment benefits rose 75,700 to 1.07 million, the highest level since July 2000, the Office for National Statistics said today. The median estimate of 27 economists surveyed by Bloomberg was for a gain of 44,000. Unanimous Vote Bank of England policy makers voted 9-0 to cut the benchmark interest rate to 2 percent this month and refrained from a bigger reduction on concern it may prompt about an “excessive” drop in the pound, according to the minutes of the Dec. 4 meeting published in London today. Interest-rate futures showed traders raised bets U.K. policy makers will reduce interest rates, with the implied yield on the March short-sterling three-month futures contract dropping 28 basis points today to 1.81 percent. “The monetary authorities have got to be aggressive,” Goodhart, now a professor at the London School of Economics and Political Science, said in a Bloomberg Radio interview to be broadcast today. He said King should approach next year with “courage, flexibility and perhaps going a bit too far with the very serious occasion we’re in.” Pound ‘Most Vulnerable’ The European Central Bank pared its benchmark to 2.50 percent on Dec. 4. ECB President Jean-Claude Trichet said there’s a limit to how far the bank can cut interest rates and signaled it may pause in January, according to comments published yesterday. The pound may be most at risk among major currencies as the economic slump forces central banks to cut borrowing costs, Merrill Lynch & Co. said. “Data over the coming weeks and months are likely to put heavy pressure on other Group of 10 central banks to ease policy more aggressively,” Steven Pearson, a foreign-exchange strategist at Merrill Lynch in London, wrote in an e-mailed note today. “Sterling is, in our framework, the currency most vulnerable to aggressive policy responses.” The yield on the two-year gilt slid 19 basis points to 1.38 percent, near the lowest level since at least January 1992, when Bloomberg began collating the data. The price of the 4.75 percent security due June 2010 rose 0.27, or 2.7 pounds per 1,000-pound ($1,544) face amount, to 104.89. The yield on the 10-year security declined 17 basis points to 3.22 percent. Bond yields move inversely to prices. “The likelihood of the bank rate getting to, or very close to zero in the near future, is extremely high,” said John Wraith, head of sterling rates product development in London at Royal Bank of Canada. “This is an environment where short yields can fall markedly further.” To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net; Gavin Finch in London at gfinch@bloomberg.net

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