The pound traded near a six-month low against the euro as traders speculated that the Bank of England will resume buying assets as the economic recovery shows signs of stalling. Sterling gained with other major currencies against the dollar on bets the Federal Reserve will ease monetary policy further by purchasing more debt. The global economy needs more monetary stimulus, and governments should be cautious in reducing deficits, the Bank of England policy maker Adam Posen said in commentary published in the Handelsblatt newspaper. The U.K.’s consumer confidence fell in September, while unemployment claims climbed, reports showed yesterday. “The pound has been an underperformer against the euro because of the lingering suspicion that sterling might have its own quantitative easing story to face up to,” said Daragh Maher, deputy head of global foreign-exchange strategy at Credit Agricole SA in London. “Most of what we’ve heard from the BOE has been dovish.” Sterling traded at 87.84 pence per euro at 12:10 p.m. in London, compared with 87.83 pence yesterday, when it depreciated to 88.40 pence, the weakest level since April 19. The pound rose 0.7 percent to $1.6010, from $1.5897 yesterday. The dollar dropped against 14 of its 16 most-traded counterparts, tumbling to a 15-year low of 80.89 yen. The evidence of a slowing U.K. recovery stoked bets that the central bank will keep the target lending rate at a record low 0.5 percent and add to its bond purchases to safeguard the recovery as the government cuts spending. Sterling’s Drop Sterling has lost 5.3 percent in 2010 against its developed-country peers, according to Bloomberg Correlation- Weighted Currency Indexes. Policy makers are trying to balance the risk of the economy slipping into a recession with their goal of limiting annual inflation. The Office for National Statistics said this week that inflation exceeded the government’s 3 percent limit for a seventh month in September. Investors’ inflation expectations are at the highest level in more than three weeks. The 10-year break-even rate, which measures the yield difference between regular and index-linked bonds, was 2.79 percentage points after climbing to 2.82 percentage points, the most since Sept. 21. The rate has increased from 2.48 percentage points on Aug. 31, the least this year. It was as high as 3.25 percentage points on April 21. Sentance on Inflation The Bank of England policy maker Andrew Sentance reiterated yesterday his call for higher interest rates yesterday and argued that failure to increase them would put the bank’s credibility at risk. “It is important” that “confidence is not eroded by a perception that the Monetary Policy Committee has taken its eye off the ball and is becoming more tolerant of higher inflation,” Sentance said in a speech in London. “Unfortunately, the risk of such a loss of confidence and credibility appears to be increasing.” U.K. government bonds were little changed, with the yield on the 10-year gilt at 2.88 percent and the 2-year note yield at 0.63 percent. Gilts have returned 10 percent since the end of 2009, according to indexes compiled by Bank of America Merrill Lynch. German government bonds have earned 9.2 percent, while U.S. Treasuries have gained 9.1 percent. To contact the reporter on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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