BLBG: Pound Declines Versus Dollar as Stock Falls Dent Demand for Riskier Assets
The pound fell against the dollar as stock markets declined, denting demand for currencies that investors perceive as tied to economic growth.
Sterling also fell against the euro as Prime Minister David Cameron said monetary policy will be used to sustain demand if the British economy falters next year, indicating interest rates may stay at a record low longer than economists forecast. The Stoxx Europe 600 Index erased an early advance and dropped 0.2 percent, extending the week’s slide. Gilts headed for the biggest weekly gain in a month on optimism that spending cuts will preserve Britain’s top credit rating.
“You just have to look at the stock market and yield spreads in the euro zone to see that concern is still there,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp in London. “That’s not going to be good for a currency like the pound.”
The pound weakened to 82.67 pence per euro as of 8:45 a.m. in London from 82.57 yesterday. It was little changed against the dollar at $1.4933. It fell 0.1 percent against its major peers, according to Bloomberg Correlation-Weighted Currency Indices.
The Bank of England said U.K. banks remain “vulnerable” to further writedowns on their assets because of a potential decline in investor appetite for risk. Derivatives and other financial instruments accounted for 40 percent of U.K. banks’ total assets at the end of 2009, the central bank said in its semi-annual financial stability report, published today.
The pound had risen earlier after Morgan Stanley raised its forecast for the currency. The bank now predicts sterling will rise to $1.43 by the end of the year and $1.52 by the end of 2011, compared with the previous projections of $1.29 and $1.41.
The 10-year gilt yield was little changed at 3.39 percent. The 4.75 percent security maturing in March 2020 fell 0.04, or 40 pence per 1,000-pound ($1,499) face amount, to 111.12. The two-year yield was at 0.74 percent.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
