BLBG: U.K. Pound Falls Against Euro as Two-Day Gain Judged Excessive
The U.K. pound fell against the euro as traders judged its biggest-ever two-day gain versus the single currency was excessive given the Bank of England may cut its main interest rate to an all-time low tomorrow to revive the economy.
The pound also slipped against the dollar and snapped a five-day gain versus Japan’s yen as declines in European stock markets sapped demand for riskier assets. The pound strengthened more than 5 percent versus the euro in the previous two days. The Bank of England will cut its key rate to 1.5 percent, from 2 percent, according to 60 economists surveyed by Bloomberg.
“It came up very fast,” said Chris Furness, head of currency strategy in London at 4Cast Ltd., a foreign-exchange data provider that counts central banks among its subscribers. “We can expect volatility to continue; it’s not getting any more liquid yet.”
The pound weakened 1 percent to 91.60 pence per euro by 10:50 a.m. in London, paring its gain this week to 4.4 percent. It depreciated 0.6 percent to $1.4832, and fell 1 percent to 138.27 yen.
The pound slid 23 percent against the euro last year, its biggest annual drop since the common currency’s debut, as U.K. policy makers cut rates by more than the European Central Bank and the British economy entered its first recession in 17 years.
Marks & Spencer Group Plc., Britain’s largest clothing retailer, said today it will cut 1,230 jobs by closing stores and eliminating positions at head office after reporting the steepest sales decline in at least nine years.
“I’d be surprised in the very near term to see the pound much below 90 pence, but further out I wouldn’t be surprised to see it come down,” said Furness, who predicts the pound will weaken to 96 pence per euro by the end of the quarter and to 90 pence by year-end.
‘Clear Overshot’
Investors should avoid betting on the pound reaching parity with the euro, according to UBS AG. “Any chase for parity in euro-pound is a clear overshot and offers limited risk-reward,” Ashley Davies, a currency strategist in Singapore at UBS, wrote in a report today.
U.K. government bonds fell, pushing the yield on the 10-year gilt up two basis points to 3.28 percent. The 5 percent security due March 2018 slipped 0.15, or 1.5 pounds per 1,000 pound face amount, to 113.54.
The Debt Management Office, which oversees auctions of gilts for the Treasury, today sold 2 billion pounds of 4.75 percent bonds due 2038.
The U.K. said it plans an unprecedented 146.4 billion pounds of debt sales in the fiscal year ending March 31 as Prime Minister Gordon Brown’s government seeks to finance bank bailouts and revive the shrinking economy amid a decline in tax revenue.
