BLBG: U.K. Pound Weakens Against Euro, Yen on QE Bets, Decline in Mortgage Loans
The pound fell to the weakest level in almost seven months against the euro as mortgage approvals dropped to the least since March 2009, heightening speculation that the Bank of England may soon be pressed into buying assets.
The pound also depreciated versus the yen to the lowest level since February 2009 as investors bet the government’s planned spending cuts will damp growth. Lenders granted 31,104 home loans, compared with 31,781 in August, the British Bankers’ Association said today. The pound rose versus the dollar, which fell against all of its most active peers, after a Group of 20 pledge to avoid devaluations reduced bets governments will buy the greenback to weaken their currencies.
“Sterling is coming under renewed pressure,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “Data this week is not going to help. Economic reports are likely to bolster a view that the Bank of England will sooner rather than later start buying assets to support the economy again. That’s not going to bode well for the pound.”
Sterling fell 0.3 percent against the common currency to 89.17 pence at 1:53 p.m. in London, after depreciating to 89.42 pence, the weakest level since March 31. One pound bought 126.70 yen, compared with 127.62 yen last week, after weakening to 126.46 yen earlier, the lowest level since Feb. 2, 2009. The U.K. currency traded 0.3 percent stronger against the dollar at $1.5721.
The pound declined 2.9 percent in the past month, making it the worst-performer in a basket of 10 currencies, according to Bloomberg Correlation-Weighted Currency Indexes.
House Prices
The currency recorded its biggest weekly loss against the dollar since August last week as speculation mounted that the Bank of England may soon resume its so-called quantitative easing program.
The number of Britons who expect house prices to fall outnumbered those forecasting an increase for the first time since 2009 in the third quarter as concerns about the economy mounted, said Rightmove Plc, the operator of Britain’s biggest property website.
G-20 officials, ending a meeting in South Korea on Oct. 23, agreed to allow markets to set foreign-exchange values, seeking to calm fears over a potential trade war. Policy makers called for reduced trade imbalances, without embracing a U.S. proposal for targets. G-20 members will meet again in Seoul on Nov. 11 and 12.
The pound also weakened before a report tomorrow which economists said will show the U.K. economy grew at a slower pace in the third quarter. Output grew 0.4 percent from a 1.2 percent gain in the second quarter, according to a median forecast of 35 economists in a Bloomberg News survey.
Quantitative Easing
“The GDP tomorrow will have a big impact on market expectations of QE,” said Adrian Schmidt, a currency strategist at Lloyds Banking Group Plc.
The only major currency rivaling the dollar’s decline since July is the pound, and foreign-exchange strategists say the worst is yet to come.
Strategists are the most pessimistic on the pound versus the euro since the ruling Conservative-Liberal Democrat coalition came to power in May, according to data compiled by Bloomberg. Prime Minister David Cameron’s pledge to cut spending by 81 billion pounds through 2015 will force Bank of England Governor Mervyn King to print cash through quantitative easing to prevent a new recession, according to UBS AG.
Gilts Rise
UBS, the second-biggest currency trader after Deutsche Bank AG, recommended on Oct. 21 its clients sell the pound, especially against the Swiss franc, Australian dollar and Norwegian krone.
Gilts rose, with the 10-year yield falling four basis points to 2.91 percent. The 4.75 percent security maturing in March 2020 rose 0.35, or 3.5 pounds per 1,000-pound face amount, to 114.98. Two-year yields were little changed at 0.63 percent.
The extra yield investors demand to hold 10-year gilts rather than benchmark German bunds slipped 1 basis point to 47 basis points.
Thirty-year gilts underperformed before the Debt Management Office sells a 4.25 percent 2040 gilt through banks this week. The yield spread between 10- and 30-year gilts widened to 113 basis points from 112 basis points a week ago.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Stephen Morris in London at smorris39@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
