BLBG: Pound Near Almost Four-Week Low Against Dollar on Economic Growth Concern
The pound was near the lowest level against the dollar in almost four weeks as a quarterly gauge of business confidence weakened, stoking concern the economic recovery may be slowing.
Sterling also declined against the yen as a U.K. index of consumer finances stayed close to the lowest level in almost a year in August. The pound earlier rose as much as 0.6 percent versus the dollar on optimism that foreign bids for British companies will boost demand for the U.K. currency.
“We don’t think the market has priced in the full effects of fiscal tightening,” said Geoffrey Yu, a currency strategist at UBS AG in London. “Markets need to be more cautious.”
The pound traded at $1.5548 as of 11:29 a.m. in London, from $1.5534 on Aug. 20, when it fell to $1.5464, the lowest level since July 27. Sterling declined 0.2 percent to 132.69 yen, while it appreciated 0.2 percent to 81.71 pence per euro.
The index of business confidence fell 4 points in the third quarter to 21.5, Grant Thornton and the Institute of Chartered Accountancy in England and Wales said, citing a survey of 1,000 members. The measure of finances, based on a survey of 2,000 households, was at 37.9, little changed from July’s reading of 37.2, Markit Economics Ltd. and YouGov Plc said in an e-mailed statement today. Readings below 50 indicate deterioration.
Korea National Oil Corp. last week made a hostile 1.87 billion-pound ($2.9 billion) bid for U.K. explorer Dana Petroleum Plc. There will be a “flood” of mergers and acquisitions in the next 18 months, said Guy Spier, chief executive officer of Aquamarine Capital LLC.
‘U.K. Specific’
“The strength of the pound is U.K.-specific, as there’s talk of mergers and acquisitions in the market and most of it is positive for the currency,” said Ian Stannard, a currency strategist at BNP Paribas SA in London. “We see this as a temporary support for the pound. It will go against the backdrop of rather poor global economic data.”
Gilts were little changed, with the yield on the 10-year bond at 2.97 percent. The two-year note yield was at 0.64 percent, after sliding to 0.611 percent at the end of last week, the lowest since Bloomberg began compiling the data in 1992.
U.K. bonds have returned 8.8 percent this year, compared with a 9.2 percent gain from German debt and 8.2 percent from Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
The British pound’s biggest rally in 14 months is in jeopardy as Prime Minister David Cameron’s budget cuts begin to curb economic growth.
‘Story Has Changed’
Foreign-exchange forecasters are the most pessimistic on the pound since May 2009, when Standard & Poor’s said the U.K. was at risk of losing its AAA credit rating, according to data compiled by Bloomberg. Bears in a Bloomberg survey of strategists outnumber bulls 29 to 12, while TD Securities in Toronto, the most-accurate forecaster in the six quarters ended June 30, has the lowest estimate, predicting sterling will depreciate 15 percent versus the dollar by year-end.
“The story has changed,” said Richard Benson, an executive director at Millennium Asset Management in London who oversees $14 billion and correctly predicted in the first half of 2009 the pound would gain versus the euro. “The prospects for growth look quite soft and fiscal retrenchment is about to be undertaken,” said Benson, who is betting against sterling as the U.K. expansion lags behind Germany.
Investors drove the pound as much as 11.8 percent higher against the euro from its low this year on March 1 on speculation Cameron’s austerity measures would shrink the nation’s 11 percent deficit and preserve its top debt rating. It’s starting to retreat as the planned cuts risk undermining the recovery.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Stephen Morris in London 7500 or smorris39@bloomberg.net.
